10 Reasons Why Gurgaon Is India's Hottest Office Space Market

Gurgaon is known as India's private city and the Singapore of India. Gurgaon has India's first private fire station and India's first privately financed metro. In 1991, the population of Gurgaon district was 1, 21,000, which grew to 8,70,000 in a decade. By 2011, it had crossed the mark of 15 million. In 2001, Gurgaon had nearly three million square feet of office space. By 2011, office space absorption had crossed 30 million square feet, higher than that in Delhi.

Gurgaon, according to a report published in The Economic Times, is now India's most sought after office space market. The report says, in the previous quarter of 2015, Google absorbed 4, 02,860 square feet of space in Gurgaon and is expected to have a total office space of 7,50,000 square feet by 2017. 

A city, which was a sparsely populated town 25 years ago, has become a city where nearly half the Fortune 500 companies have offices. Why? Here are 10 reasons.

For long, Gurgaon had no local government

In 1979, Gurgaon parted ways with Faridabad. Unlike Gurgaon, Faridabad had a rail network, basic infrastructure, industrial enterprises, and an urban local authority. The absence of an urban government was an asset and liability at the same time for Gurgaon. Usually, while acquiring land, real estate developers and private firms have to deal with multiple bureaucratic layers. But, in Gurgaon, and Haryana in general, this was not necessary because the chief minister's office (CMO) had the veto power on land conversion. This lowered transaction costs, making land acquisition easy. Building roads and highways became easier too, in private developments.

In Gurgaon, it is easy to build

Gurgaon is one of those few Indian cities where it is easy to build. In most Indian cities, receiving necessary permits to build takes up to many years. But, in Gurgaon, delays are far less common. So, Gurgaon's success lies in its real estate.

Gurgaon is a private city

In , private firms and residents are doing the best they can to tackle the city's civic failure. Water, electricity, and sewage systems are provided by private firms. This, of course, comes with its costs. Private production and provision of water works well. But, when real estate developers in Gurgaon extract water from the ground, for instance, it leads to dissipation of ground water. Private production of electricity works well too, but it pollutes the atmosphere. Using diesel to generate electricity is costly, and private producers of electricity are not yet able to benefit from economies of scale. Private sewage systems, work fine too, but sewage is often dumped on public property. But, despite all this, these private services work well for people who pay for it.

Gurgaon is adjacent to Delhi

Real estate in Delhi is more expensive than in Gurgaon. When cities prosper, firms and offices tend to relocate to suburbs. This partly explains why Gurgaon has become an office space destination. Gurgaon is also close to the Indira Gandhi International (IGI) airport, which is an advantage. But, some economists like Bibek Debroy and Laveesh Bhandari have pointed out that this does not sufficiently explain Gurgaon's success because the adjacent Faridabad has a rail system. The transportation networks are weak in Gurgaon, though Gurgaon is connected to Delhi through metro. Moreover, road congestion is common in Gurgaon because of poorly designed roads and toll booths.

Gurgaon was built from scratch

Building cities from scratch can have its own advantage. For instance, it is easier to enforce policies that are business-friendly. If the productivity of agricultural land was higher, or if land in Gurgaon was already put to valuable use, land conversion would have been met with great opposition. As Gurgaon's land was largely idle, converting it for non-agricultural use was easier and cheaper.

Gurgaon grew despite the government

Adequate private or public planning is necessary for a city to function. Jamshedpur in Jharkhand, for instance, is a privately planned city. Companies such as DLF own large parcels of land in Gurgaon, but they do not own sufficiently large parcels of land like Tata did. So, they do not have much of an incentive to provide city-wide sewage or water. Yet, private action can overcome such constraints. For instance, private security personnel in Gurgaon is many folds that of public police officials. As a result, crime levels in Gurgaon is comparable to that of Delhi or Faridabad. As transportation networks are poor, private companies drive employees to offices. There are private roads. Now, Haryana Urban Development Authority (HUDA) and DLF are in the process of building a 16-lane signal-free expressway.

General Electric opened an office in Gurgaon in 1997

When a large company such as General Electric (GE) opens its office in Gurgaon, other firms follow suit. DLF and the Indian government invited GE to build its office in Gurgaon. American Express was another large global firm that set up its office in Gurgaon. India was recently liberalised at that point in time, and this urged many other firms to build offices too. By 2011, Gurgaon was more successful than Delhi in office space absorption.

Gurgaon has a large labour pool

Employers in Gurgaon have access to a large labour pool because it is one of the largest office space markets in India for years. It allows employees to move from one firm to another, acquiring valuable skills. This also breeds entrepreneurial culture. Firms that specialise in complementary areas allow greater exchange of ideas and expertise.

The private sector is compelled to perform

In , DLF has built India's first private fire station. Private fire stations are not common in India because they cannot generally benefit from economies of scale. But, in Gurgaon, DLF had to build one because government provision of such services were not adequate to meet their needs. Now, DLF feels that if there is a fire in Gurgaon, it would be detrimental to their reputation. Similarly, when accidents happen to employees chauffeured to offices by private vehicles, corporations are seen responsible.

Gurgaon's failures are overstated

When we fault Gurgaon for its failure in providing basic infrastructure, remember: This is true of many Indian cities. As of 2011, 4,861 of 5,161 cities and towns in India lack even a partial sewage system, and half of them lack even a piped water system. Even in cities such as Bangalore and Hyderabad, as of 2011, half the households did not have sewage connections. In most parts of India, power failure is quite common.