Should businesses continue to operate out of old jaded buildings at the heart of the city? Is it more convenient for the commercial activities to move to the upscale swanky offices on the periphery locations where the cost of doing business per square feet is much lesser? Is ‘Walk to Work’ only a city center reality across the urban pockets? These are the subjects of serious discussions across the built environment of commercial real estate world over, finds Track2Realty.
In India too, Commercial real estate is fast changing its landscape and the CBDs (Central Business Districts), once the lifeline of the businesses, are fast losing out to the SBDs (Secondary Business Districts) and PBDs (Peripheral Business Districts). It is not a region-specific phenomenon but happening across the cities.
Connaught Place at the Central Delhi or the South Delhi locations, till a decade back the first choice of the businesses, are today witness to shift of the businesses. Gurgaon as the PBD is actually no more a PBD but could claim to be the CBD of Delhi NCR on its own. Similarly, the emergence of Noida is giving a tough contest to some of the prime locations of Gurgaon.
In Mumbai, who would have thought a decade back that the ICICI bank, National Stock Exchange, Reserve Bank of India, diamond bourse, et al would shift their offices from the most preferred location of Nariman Point to BKC (Bandra Kurla Complex). Also, the MCA, Asian Heart Hospital and Dhirubhai Ambani International School, The American Consulate preferred shifting to BKC.
Rajeev Sharma, a local real estate agent operating in Gurgaon for the last two decades, maintains that the trend of PBDs preference has evolved over the years. According to him, it has not been a case of overnight shift from Connaught Place and South Delhi to Gurgaon. More importantly, the businesses have done their cost & benefit analysis in a time-bound space.
“When the high rentals made many of the small businesses unsustainable in places like Khan Market, Nehru Place or Greater Kailash, they had no choice but to move out to the cheaper locations of Gurgaon. But what actually changed the market dynamics is the reality of the large corporates preferring to set up their businesses in Gurgaon. The large floor plates demanded by these MNCs changed the market reality,” says Sharma.
What led to the emergence of PBDs and made it a tempting proposition for the businesses, at the cost of the CBDs. Let’s examine the ground realities through market fundamentals and the economic rationale.
Decaying old buildings of CBDs: Most of the office complexes in and around the CBDs are old buildings. These buildings only have the USP of locational advantage, while the upscale businesses wish to operate out of the swanky offices with all modern amenities incorporated within.
Horizontal growth of housing market: It is all about the target audience for the businesses. The horizontal growth of the housing market across the major cities of India has given the businesses shifting to the periphery locations the dividend of a large catchment area. Naturally, there is no major disincentive of shifting out of the city center.
Cost of doing business per sq feet: Rentals across the CBDs of the major cities of India had skyrocketed over the years. It has made the businesses unsustainable in many of the cases. The PBDs offered a breather at the most competitive prices, compared to the CBDs. And hence, the businesses started shifting to these periphery locations.
Better infrastructure & connectivity: Be it Connaught Place of Delhi or Nariman Point of Mumbai, the CBDs are known to have traffic bottlenecks. In contrast, the PBDs in most of the urban pockets of India do offer better infrastructure and connectivity. They are more often than not also better planned urban pockets.
Social infrastructure: In an age of ‘Live, Work & Play’ the corporates and the MNCs wish to attract the best of talent with certain add-ons to the otherwise stressful job profile. The commercial spaces in the PBDs are today offering better recreational and social life to add zing to the professional life, and that too within the office complexes. Naturally, they have emerged as the ideal choice for both the employers as well as the employees.
Balanced view analysis
There is no denying that there is pressure on the rentals of the CBDs across the major cities of India. They have indeed lost their sheen to the PBDs. But that also brings to the table an important argument as to whether there are no takers for the CBDs. More importantly, does it make sense to have an office or shop in the CBDs?
Analysts tracking the commercial property market suggest it is a subjective question. Losing out to the PBDs and having pressure on the rentals doesn’t mean the relevance of the commercial spaces in and around the CBDs have been over. As a matter of fact, vacancy level across the major CBDs of the Indian cities is not that high.
The nature of the business defines the need and requirement of commercial spaces. There are many businesses that need to cater to the local market. The residential market in and around the CBDs are mostly upscale and the purchasing power is high. Many of the luxury brands prefer to have their presence over there for their brand positioning and/or recall value.
The upscale residential colonies in and around the CBDs also need a walk to work or closer to home office option. Many of the Richie Rich still prefer to have a SEC A+ address, both for home and offices.
What should a business do? Whether one should opt for CBD or the PBD? Well, it depends upon many variables like, the nature of the business; clients’ profile & preferences; risk & returns; logistical requirements etc.
What could definitely be vouchsafed is the fact that so long there is a huge gap between the rentals of the CBDs and the PBDs, the PBDs will have an edge over the CBDs. The operators of commercial real estate in and around the CBDs need to reinvent the offerings to remain relevant in the business.
Ravi Sinha
#RaviTrack2Media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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