In today’s world, I do not recommend creating new zones with arbitrary top level domains, as these might make it into “official dns” at any point in time.
I personally would favor the subdomain delegation scenario, as it seems to be fitting what you try to do. (Consolidate but give control to engineering)
Maybe you can even find a web-front-end for MS DNS where engineering could add/remove records, so that the server itself is still owned by production IT, and the only thing “they” manage is DNS entries.