1. NCR property: Pre-commitment office deals rising in NCR; here is why

NCR property: Pre-commitment office deals rising in NCR; here is why

In a pre-commitment office deal, a developer/landlord leases the building to corporate occupiers even when the building is under construction.

Published: September 14, 2017 3:26 PM
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By Vineet Anand

Over the years, real estate has become a very important element in the overall business plan strategy of corporate occupiers and the need to plan for future real estate requirements is becoming even more critical for occupiers today. A classic evidence of this trend is the increasing number of pre-commitment office deals in the real estate market of NCR.

In a pre-commitment office deal, a developer/landlord leases the building to corporate occupiers even when the building is under construction. As a first level documentation, an Agreement to Lease (ATL) is generally executed between tenant & developer with exchange of part/full deposits and once the building is ready and Occupation Certificate is received by the developer/builder, a Lease Deed is signed & registered between both the parties.

In a market which has shortage of quality real estate office supply and increasing pressure on rents, large multinationals are finding it more & more viable to strategize their real estate portfolio today and pre-commit space for future needs & portfolio optimization. This also helps multinational companies in negotiating contiguous space of their choice within the building, inbuilt flexibility for future growth plans by way of First Right of Refusals (FRR) & Hard options, structure their leases as per requirements, apply & create new age technology driven workplace strategies etc.

In Gurgaon, this trend has picked up in the last five years when clients like Panasonic pre-committed space admeasuring 225,000 SFT in Ambience Corporate Tower 2 (part of Ambience Island on NH 8) as part of its consolidation/expansion strategy. Similarly, Google is another example which was able to forecast its growth strategy and plan/pre-commit space accordingly well in time in Signature Tower 2 developed by Unitech on NH 8. GSK is another example where the occupier outrightly purchased close to 68,000 SFT of office space in One Horizon Center on Golf Course road while the building was still under construction phase.

Another fine example of rising interest in corporate occupiers for pre-commitments today is DLF’s upcoming project “DLF Cyber Park” which is located just off NH 8 (opposite Trident) in Gurgaon. It’s a large grade A IT/ITeS office development admeasuring close to 2.5 million SFT. Many multinational/corporate occupiers, specially the ones with split portfolios in multiple buildings/floors (including the ones in DLF Cyber City), are showing interest in this project and considering this project as an excellent opportunity to consolidate their real estate portfolio.

In Delhi, Bharti Reality’s World Mark project in Aerocity (a 1.4 million SFT office cum retail development) was also able to close a precommitment deal for E&Y close to 60,000 SFT. Similarly, in Noida, Global Logic is another example which precommitted approximately 325,000 SFT in Oxygen Business Park (IT/ITeS SEZ) on Expressway.

Most of these pre-commitments are a result of strong developer background & proven track record of timely delivery, quality real estate space under construction, well-planned amenities & provision for parking, contiguous large floor plates ranging between 50,000 SFT to 200,000 SFT on a single floor level, future ready technology, safety & security features, improved connectivity to public transportation like metro etc. Further, a precommitment deal also gives an opportunity to a tenant/occupier to negotiate flexible commercial/lease terms and adjust/cover its future risk against any out of the market escalations on rental etc.

In lieu of the above, whilst there are enough examples of office pre-commitment deals in the NCR region; of all Gurgaon as a market, clearly is a winner & has the major share of these deals especially from the firms in technology & technology-enabled services sector.

With a sizeable Grade A office supply (comprising IT, Non IT & SEZ) asset class, that is currently under construction in NCR and is scheduled for completion in the next 3 years, admeasuring more than 25 million SFT; during the construction & marketing phase, developers/landlords have an opportunity to focus on parameters that can enable corporate occupiers to look at their buildings more from a long-term perspective and plan their consolidation/expansion future needs today by way of a precommitment. With the overall business sentiment picking up, this trend of precommitment deals is definitely a trend to watch out for as we progress ahead in these growth markets.

(The author is Director-Office Services, Colliers International India)

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