Delhi Metro turns to leasing
NEW DELHI: The harried yet smiling young girl at the counter had to nearly shout to be heard over the din: "This outlet has been here for over five years." The crowded McDonald's, right next to the largest interstate bus terminus in the city, was the first commercial property that Delhi Metro Rail opened at its Kashmere Gate station, in 2001.
In 2003 the popular hypermarket Big Bazaar opened at the Inderlok station and, since then, malls, kiosks and stores have been appearing in and around the Metro stations.
The Delhi Metro, a joint venture of the federal and city governments, is a relatively new public transit system. The first phase, completed in 2006, involved about 65 kilometers, or 40 miles, of track and 51 stations. An expansion, to be completed before the city is host to the Commonwealth Games in 2010, is to add another 121 kilometers of track and 79 more stations.
When the initial plans were completed in 1999, they stipulated that 7 percent of the project's 60 billion rupee, or $1.5 billion, price had to come from commercial property development, using some of the land owned by the Metro operation to create commercial centers, said R.M. Raina, who is a commercial properties adviser for Delhi Metro Rail Corp.
Initially, the Hong Kong Metro, which generates nearly 50 percent of its budget from such commercial rentals, was to be the model. But, later, Raina said, too many differences became obvious. In Hong Kong a location is identified, the property developed and then the subway line is extended to serve that site.
"Delhi is very different," Raina said. "There are many clearances to be obtained from municipal authorities before the character of land use can be changed, and that takes a long time."
As an alternative, Delhi Metro Rail determined that its station complexes already had extra space that could be used by commercial outlets. Since McDonald's opened at the Kashmere Gate station, the rental growth has been continual - as has the number of potential consumers. The Metro aims to carry about 2.6 million passengers a day by 2011.
Today, a stroll through the sprawling 6,000 square meters, or 65,000 square feet, of the multilevel Kashmere Gate station seems like a walk in a shopping arcade. In addition to a mall that is being built on the site, there are more than a dozen small outlets inside the station, including photo studios, gift shops, mobile phone stores, finance companies, bookstores, music shops, and even clothing retailers.
In other locations, the corporation has rented space underneath its elevated stations.
The Metro's first phase has substantially altered property values in the parts of the city it serves, with prices in adjacent areas going up nearly tenfold. Dwarka city is a Delhi Development Authority housing project that had been stagnant but, since the Metro lines reached there in July, prices have jumped 40 percent to 50 percent, to about 3,500 rupees per square foot, from 2004.
Seeing the upward trend, Delhi Metro Rail began to explore different ways of introducing commercial use, Raina said. Initially, it had granted a 99-year lease on a property in exchange for a lump sum, the amount of which depended on the size of property and its location.
It later imported the U.S. system of concessions, granting 30-year leases. For example, a concession on a site of three hectares, or almost 7.5 acres, could cost nearly 300 million rupees. There will be some additional costs spread over the term of the lease and, at its end, the land could revert to the corporation if it decided not to extend.
Similarly, kiosks and outlets inside stations now have 12-year licenses that are about 60 rupees per square foot a month.
"This ensures that DMRC would be in a position to exploit future increases in property values," Raina said.
The impact of the Delhi Metro's expansion also has been an important factor for developers who build on its properties. Signs for Parsvnath Developers are on many of the malls and other buildings being constructed at Metro stations. M.C. Jain, a senior partner in Parsvnath, said the company was interested in the sites because "location around the station itself develops. "
"Also, Jain said, "being on or around the stations ensures committed footfalls in the complex."
Raina said: "Most of the developers are now getting rentals ranging from 100 rupees to 150 rupees per square foot per month, depending on location. This is at par with other malls in the rest of the city".
But developer interest was not so strong just a few years ago.
In 2003, the corporation had six hectares available at a depot in the down-market area of Shastri Park, in East Delhi. Despite actively wooing developers, it found no takers.
Ellatuvalapil Sreedharan, managing director, decided to invest the company's own revenue and, at a cost of about 900 million rupees in 2005, built an information technology complex designed for software development and computer-based services.
The eight-story structure, with its Metro logo, is clearly visible from the Red Line carriages as the Metro travels beyond Kashmere Gate. The Delhi Information Technology Park started paying for itself within six months, Raina said. It now is rented to major companies like GE Capital and Accenture at about 60 rupees per square foot a month.
Buoyed by this success, the corporation arranged for the federal government to declare the area a special economic zone, providing various tax breaks and other benefits to tenants. It now plans to build six such buildings in the area and already has permission for three of them, scheduled to be ready by 2010.
The corporation now considers its property development efforts to be successful. "We are meeting the target of 7 percent of the project cost upfront and 30 percent of the fare-box revenues for recurring expenses, and hope to match Hong Kong by generating 50 percent of fare box revenues in the future," Raina said, referring to riders' payments.
Having learned from its first efforts, the corporation now plans to build stations with commercial complexes below, within and on top of the stations as part of the original plans. And a special dispensation by the federal government has designated a three-hectare radius around each station to be free of land-use restrictions to speed such development. Three major stations already are under construction.
"The future also sees development of hotels around the airport and in the heart of Delhi, if we get the clearances," Raina said.