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Haryana job quota law may harm commercial office leasing in Gurgaon, say experts

It may lead to an increase in commercial office and industrial space requirements in the adjoining locations of Noida and Rajasthan as businesses might look to relocate in the medium term.

Source: Flickr

Source: Flickr

The Haryana government’s law to reserve 75% of private sector jobs with a monthly pay of up to Rs 30,000 for locals has been notified and is expected to come into effect from January 15, 2022. This, say some real estate experts, is likely to impact Gurgaon’s real estate sector and encourage more companies, especially those involved in back office work, to shift to Noida due to high rentals.

“In exercise of the powers conferred under Section 3 of the Haryana State Employment of local candidates Act 2020 (3 of 2021), the governor of Haryana hereby notifies thirty thousand rupees as gross salary or wages for registration. This notification shall come into force with effect from 15th Jan, 2022 ie, the date of commencement of the said Act,” said the notification issued on November 6.

“Reservations of any kind do affect the overall ease of doing business sentiment of a state or a country. Haryana needs to be cognizant of the signals it sends out to companies,” said Gagan Randev, Executive Director, India Sotheby's International Realty.

Also Read: Haryana govt's law mandating 75% job reservation for locals to come into effect from Jan 15, 2022

Multinational companies set up offices in the National Capital Territory (NCR) for superior talent and they can relocate from Gurgaon to Noida if they feel that business will get more difficult. Office rentals are lower in Noida and the UP government is doling out special schemes to woo the manufacturing sector to locate units in the newly carved out Electronic City and work on the upcoming Jewar airport has begun.

“While the Haryana chief minister did clarify that the employment of local candidates will not apply to technical jobs, the final notification does not carry that clarification. I think it could lead to some compliance scare right away, even if it does not lead to any immediate relocation amongst large office real estate occupiers,” said Randev.

Haryana’s job quota law to increase employment for local youth may end up being detrimental to commercial office and industrial leasing, which is witnessing green shoots of recovery as the fear of contagion spread from the pandemic recedes, said Prashant Thakur, director and head - Research, ANAROCK Group.

The aim of business owners is to attract best talent across the country and such moves can act against hiring plans, he said and added that the government should ideally focus on upskilling local youth rather than imposing a job quota or reservations.

Against this backdrop, there may be a rise in commercial office and industrial space requirements in the adjoining locations of Noida and Rajasthan, as businesses might look to relocate in the medium term, Thakur added.

The law is expected to impact industrial occupiers in new locations, some experts warned.

“The legislation to be implemented from next year is a toned-down version of the law passed by the legislative assembly early this year. With tweaks on the definition of a domicile and salary cap on which the law gets implemented, the law would not hurt the sentiments much. However, for entities evaluating India's entry strategy, of expansion strategy within India, Haryana might have a slight disadvantage to other competing locations on the comparative evaluation matrix. The impact will be more pronounced for industrial occupiers, especially in new locations, as most of the established industrial locations generally have ample work force that will qualify as domicile workers. The impact of legislation on office space leasing would now be negligible with the changed form of law as majority of work force in such setups are at higher salary levels," said Ashutosh Kashyap, Director, Advisory Services, Colliers India.

According to Mudassir Zaidi, executive director – North – Knight Frank India, any reservation in a free-market economy may have a negative impact. There may not be a deluge of companies moving out of Gurgaon to Noida in the short term, but the impact may be felt in the medium to long term, he said.

Of late, the Gurgaon commercial market has made a smart recovery to 35-50% of the pre-COVID-19 level, especially areas such as Golf Course Extension and Udyog Vihar and Noida is at 50% level against 70% earlier. Having said that, one would have to wait and watch to see how the new law impacts commercial leasing, especially concerning companies that deal in backend work, he said.

As far as residential leasing is concerned, the segment earning around Rs 6 lakh per annum generally takes up homes on rent in the unorganized segment. “This law may not have an impact on the regular residential rental market,” Zaidi said.

Delhi NCR, Mumbai, and Pune contributed to 62% of the gross leasing volumes recorded in the third quarter of 2021, according to a report by JLL. India’s net office absorption stood at of 5.85 million sq. ft in Q3 2021 (July-September), a jump of 48% when compared to previous quarter and an 8% Year-on-Year (YoY) growth in major cities.

Better awareness about the virus, preparedness along with mass vaccination drive and unlocking of economy has aided in the revival of the office market. As a result, and due to many such supportive factors, the net absorption recorded in Q3 2021 surpassed the net absorption recorded in Q1 2021 by 12%, which paint a clear picture of improved market sentiments and growing confidence among occupiers, according to the report.

Delhi NCR recorded the highest net absorption amongst the top 7 cities taken under consideration this quarter. The net absorption recorded this quarter surpassed the net absorption registered in Q1 2021 by 32% indicating a strong market recovery despite a dip in Q2 2021. Leasing activity was mostly driven by manufacturing sector which accounted for about 40% of the total leasing activity, the report said.

Vandana Ramnani
Vandana Ramnani
first published: Nov 8, 2021 04:37 pm