Noida: an office hub?

BIRD'S-EYE VIEW

Noida has been slow to catch up with Gurgaon, but it may finally be developing into the next big office centre.

We can finally see a perception change happening about Noida. The city is starting to lose its image as just a low-cost alternative to Gurgaon, in terms of office space.

Though Gurgaon accounted for as much as 63 per cent of the total take up of office space in the first six months of 2006, according to DTZ, the third quarter belongs to Noida which has climbed from 27 per cent in the first six months to 48 per cent in the third quarter.

This upturn is just temporary, basically due to companies like Accenture and GE taking up to 1 million sq ft of space in the third quarter.

"However, Noida is doing far better than it has ever performed earlier. It has beaten its own standards," says Vivek Dahiya, associate director-global corporate services, DTZ Debenham Tie Leung India.

Over the next two years, Gurgaon will still maintain its lead in the NCR. Dahiya informs that there are a large number of developers vying for Gurgaon and the projects themselves are much larger compared to Noida.

Dahiya, though, is optimistic. "Noida is starting to concentrate more on commercial leasing, which was not the case earlier," he says.

Even the bigger developers who were concentrating on only Gurgaon earlier, like Unitech and DLF, are working on projects in Noida.

Gurgaon has always had an edge when it comes to office space, because it is closer to the airport and also because it had quality office space being developed. But with larger developers entering Noida, the scenario there is changing with high-end office spaces being developed.

"Many could start looking at Noida for their expansion plans as quality spaces come up. This will also be because companies which have a base in Gurgaon or elsewhere will want to tap the HR base of Noida and surrounding areas as well," explains Dahiya.

As has been the case earlier, Noida will continue to have an edge in terms of prices. "Noida is less expensive and that will continue to be," he says. Even with better-quality buildings, the price is expected to be lower than in Gurgaon.

One big factor is that cost of land is still less in Noida. There has been a substantial increase in commercial rentals in Gurgaon in the past one year with the warm-shell rentals averaging around Rs 50-55 per sq ft compared to Rs 35-40 in Noida, giving Noida a significant cost advantage.

Gurgaon will get a fresh supply of 4.8 million sq ft of office space in 2007 and 5.1 million sq ft in 2008. Noida, in comparison, will get only 2.8 million sq ft in 2007 and 1.3 million sq ft.

Hopefully, rentals in Gurgaon are expected to stabilise as the new supply enters the market 2007 and 2008, and with that Gurgaon's share in total NCR absorption will rise again.

Beyond Noida, Greater Noida is likely to emerge as another IT/ITES destination within the NCR as Tech Zone in Greater Noida is expected to become a major hub.

Companies like Wipro and NIIT have already acquired plots for their campuses, whereas various developers have also acquired plots for developing multi-tenanted and built-to-suit IT/ITES space.

The NCR has witnessed overall office space absorption1 of 6.36 million sq ft in the first three quarters of 2006. The total absorption for NCR is estimated to be 8 million sq ft by year end, nearly 3.5 times of the absorption in the entire year of 2005 (2.36 million sq ft).

The absorption figures for NCR are comparable to those of the top four cities globally in office space absorption (2005), namely Tokyo (12.33 million sq ft), London (9.96 million sq ft), Bangalore (9.28 million sq ft) and Shanghai (6.83 million sq ft).

However, NCR continues to lag behind the absorption levels in Bangalore of 9 million sq ft (till September, 2006), which is estimated to reach 11 million sq ft by end 2006.

The office market absorption continues to be driven by the IT/ITES sector which accounts for about 59 per cent of the total office space absorption in this quarter, followed by the back office operations of banking, financial services and insurance companies.