With a growing economy and investments in profitable business sectors like IT, ITES, BPO and the retail sector, commercial real estate rentals is at an all time high. Commercial rentals in Delhi region continue to be driven by malls and business process outsourcing (BPO) units. These trends have created a thriving market for office space rentals and mall space rentals in Delhi.

Office space rentals: Delhi has always been the preferred location for corporate houses in India as well as the MNCs to establish their operational bases in the city. This trend has been strengthened with the inflow of the multinational companies in the IT and BPO sector that have rented or taken on lease office spaces either for setting up business or for expansion plans.

Delhi's corporate workforce's net absorption of office space in 2005 was around 3.3 million sq ft. (up from approximately 3 million in 2004), representing no less than 10% of the total office space. However, construction of new offices is still proving to be insufficient to meet the demand, driving down vacancy rates.

The CBD located in the centre of New Delhi is still the most preferred location for setting up offices. Banks and corporate service providers are also situated there. However, due to the increase in the rental values and comparatively higher rates new office blocks are being built on the outskirts in the south of the metropolitan area and in peripheral districts.

*Indicative Rentals

Moreover, the sealing of unauthorized commercial establishments by Municipal Corporation of Delhi (MCD) has also lead to the partial increase in office rentals given the demand for legitimate space. A recent study has however chosen to differ.

The report says that rentals for office space have increased by 90-120 per cent over the last one year in prime locations; and do not directly intend for any substantial rise in office rentals due to sealing drive, even though it might partially influence prices in days to come.

Mall space rentals: With the retail boom sweeping the capital Delhi, mall space have become the most sought after commercial property. Presently, there is over 2.5 million sq ft space in 28 operational malls and shopping arcades in Delhi, with a vacancy of nearly 10%. Such is the gap between demand and supply that with the lack of good quality space and high rental values within Delhi, large format stores and food retailers have already booked for spaces in proposed retail malls in the NCR region.

The demand in mall developments in Delhi is essentially driven by the aggressive expansion plans of national retailers, new entrants created by relaxation of FDI in retail and well-known Indian brands. While there are over 30 additional malls in the pipeline within Delhi to be operational in the next three years, adding more than 11.5 million sq ft., retailers with plans to expand across different catchments still continue to seek alternate space within these malls.

Some increase in the retail rental trend can be owed to the sealing drive undertaken by Delhi's MCD which has South Extension witnessing a 111.5% increase from last year's retail rents of Rs. 220 per sq. ft. to Rs. 550 per sq. ft. per month.

Similarly, retail space rents in Greater Kailash and Connaught Place increased by 110% and 100% in the last one year to Rs. 525 per sq. ft. per month and Rs. 400 per sq. ft. per month, respectively.

This sharp increase in prices - by 70-100 percent was witnessed with the ousted businessmen now looking for space in authorized shopping areas as well as malls, thereby giving a further boost to these new retail destinations making Delhi a guiding example of commercial rental properties.