Satellite Study

By CUSHMAN & WAKEFIELD

Since 1951, the population in the NCR of Delhi has been growing exponentially. One of the major reasons for this growth in population has been the migration from nearby states, which lead to overcrowding and a shortage of civic amenities. Hence, in 1985 NCR Planning Board was formed with consensus of neighbouring participant states. In 2001 the Regional Plan 2001: National Capital Region was released, showcasing a planned and methodological approach towards regional planning. With the formation of NCR, Gurgaon and Noida emerged as the primary satellite cities.
Noida was initially created as an alternate industrial district to the existing Okhla Industrial Area in Delhi, and Gurgaon was originally a small town in Haryana sharing the border with Delhi. Today the two satellite cities have evolved substantially with an immense amount of commercial development, resulting in significant demand for rooms.

Inventory
Gurgaon has an organised inventory of approximately 4,196 keys.From 2009 to 2012, the inventory in Gurgaon has grown 72 per cent; with the maximum growth of this inventory being in 2009, with hotels such as Leela Kempenski, Optus Sarovar Premiere and Radisson commencing operations during that year. Gurgaon currently expects a supply of 3,335 keys over the next five years, with brands such as Holiday Inn Express and Four Points marking their presence in the market.
Noida has had a small base to grow from as well; however, the city has seen little or no major change recently — only an addition of 24 keys in 2012. From 2009 to 2012, the growth inventory has only been six per cent with the majority inventory growth being during 2009, with Fortune Inn Grazia entering the market. Development of hotels has been slow in the past as a number of developers have pulled out of their proposed hotel projects due to political impediments. However, the upcoming supply in Noida constitutes to about 3,350 keys over the next five years, with a major concentration along the Noida-Greater Noida Expressway and is likely to feature some major luxury brands such as St. Regis and Starwood’s W.
Gurgaon has a larger inventory, and in the next five years, is slated to have a total estimated number of keys over 7,000, where Noida is to have over 3,500 keys. With respect to the total inventory in NCR, Gurgaon accounts for 23 per cent of NCR inventory while Noida accounts for 11 per cent.
Currently, within Gurgaon, 33 per cent of the inventory is midscale, which is dominant, followed by 20 per cent in the upscale segment and 17 per cent in luxury; a minor contribution is seen from the upper-midscale segment.
Likewise, within Noida, majority of the inventory is dominated by the midscale, which comprises almost 31 per cent. This is followed by 30 per cent from upper-upscale segment. Minority contribution is from the budget segment, with 18 per cent.
Noida still has a very minimal organised inventory size in comparison to Gurgaon and is yet to establish brand classifications across all segments ranging from luxury to budget. With respect to brand classification, Gurgaon is a far more diverse market,

Market performance
With respect to occupancy rates in Gurgaon, hotels were seen to achieve an occupancy rate of 58 per cent, having seen a decline by four per cent from 2011. This decline in occupancy can be attributed to the increase of inventory, by almost 938 keys in the recent year and slow growth in the overall economy. In terms of ARR, Gurgaon achieved Rs6,425 in 2012 — a decline by three per cent over the previous year.
During 2012, Noida recorded occupancy of 65 per cent, registering a year on year growth of two per cent. This can be attributed to the fact that Noida has seen little or no competitive increase in inventory but the demand in this micro market has been consistently growing. Noida has recorded a market wide ARR of Rs5,341 and a significant increase of five per cent, over the previous year.
Gurgaon seemingly has a supply-demand mismatch, with the new inventory being added to the market constantly and the demand segment recovering slowly. Noida, has not experienced any significant addition to the inventory over the years but boasts of a strong pipeline of hotel development.
Noida offers greater ground coverage and a higher FAR as compared to Gurgaon. This showcases that Noida hotel developments would potentially gain an edge over Gurgaon hotels as they would be allowed for greater inventory and greater use of their land area and the no limit on building height.

Tourism development
In terms of policy-making, the state government of Haryana proposes Gurgaon to be developed as a convention and exhibition hub and has proposed development of a convention centre through the PPP model. Furthermore, the government has proposed to set up adventure sites under the PPP model in nearby areas of Sohna and Damdama.
Although Noida itself has not witnessed any major development for tourism, its neighbouring extension Greater Noida, has seen some major developments in terms of world-class facilities such as the proposed Night Safari, a sports city which features currently a Formula1 race track, a world-class golf course, and is to feature a cricket stadium, a hockey arena and more.

Connectivity
Gurgaon, today, is a preferred choice for most companies even with rental rates for commercial space being higher than space available in Noida, this is due to the proximity to the international airport and better connectivity via the Delhi metro.
Noida, on the other hand, lies at a distance of almost 40 kilometers from the airport. The city however is connected to NCR via the Delhi Metro and easy access by road from the NCT of Delhi via DND Flyway.

Conclusion
Considering the general sentiment of the developers in the market, Gurgaon has been perceived as a safer bet due to the immense amount of commercial space forecasted which is likely to lead to an increase in demand for room nights in the future. Taking into account the commercial demand alone, it can be seen that currently Gurgaon will witness an increase of 3.2million sq ft, in addition to the existing 36million sq ft of commercial office space, while Noida has 18.6million sq ft currently and just over 4million sq ft under construction. In Gurgaon absorption levels YTD, as of Q4 2012, have been over 2.1million sq ft whilst in Noida absorption had been just 1.2million sq ft, demonstrating a higher demand in Gurgaon. Hence, demand for room nights in Gurgaon is expected to increase proportionally with the increase in commercial space and the strong absorption levels over time. However, Gurgaon looses out to Noida in terms of the availability of better infrastructure and proximity to Greater Noida, with its recreational infrastructure and Yamuna Expressway. Such facilities may draw crowds that could potentially stay for additional room nights. Such developments could lead to the Noida region becoming a lucrative micro-market in the region.