Office rentals rise on higher space demand
Rentals in Gurgaon’s rose 13% in the last one ye Cyber City area rose 13% in the last one year while those in Bengaluru’s Whitefield and Electronic City rose 12%. Rentals in Bengaluru’s non-IT locations such as Koramangala and Indira Nagar grew 16%.Micro-markets on Chennai’s Old Mahabalipuram Road, from Taramani to Perungudi Toll, saw rentals rise 5%, according to data from property consultancy CBRE Asia.
Rentals in Hyderabad’s IT corridor, in areas such as HITEC City, Madhapur, Kondapur, Raidurg, Gachibowli, Nanakramguda, Manikonda and Kukatpally, rose 14-20% in the last one year. Rentals in most parts of Mumbai and Chennai, however, remained stagnant.
Anshuman Magazine, managing director of CBRE South Asia, said rentals have risen because of a shortage in supply. “Supply is coming in, but not in preferred locations,” he said. Supply has become constrained because in the last few years when office demand had tempered, most developers chose to focus on the residential segment due to liquidity issues. “They chose to not venture into the commercial segment because it required upfront investment,” Magazine said.
In some of the key markets, this demandsupply gap, which existed over the last few years, isn’t there any more because of faster take up of office space. Nanda Kumar OP, vice-president at Prestige Constructions, said micro-markets in Bengaluru like Whitefield, Outer Ring Road and Central Business District have already reached their peak in terms of rental appreciation. “For the next one-and-a-half years, we will continue to see rentals going up by at least 5-7% annually,” he said.
Prestige has around 18 million sq ft of upcoming and under construction office space that is expected to come into the market in three years, helping the city overcome the shortage in supply of office space. In other cities too, like Gurgaon, builders are now taking corrective action to bring in more supply that will cater to new demand for offices.
“Rentals will rise further in most key markets over the next 12 months,” said Anckur Srivasttava, chairman of GenReal Property Advisers. “This will be more pronounced in the top IT cor ridors of the major metros, which will see rentals rise in double-digits according to our consensus estimates,” he said. While some markets have already seen rentals go up, others such as Mumbai and Chennai, where rentals have been stagnant so far, are also expected to see an uptick, both in demand and in rentals.
“In Mumbai, although rentals are steady, the momentum with which the commercial spaces are being picked up over the last 15 months is significantly positive and indicates optimism on economic growth expectation. Based on the kind of deal pipeline that we are seeing, rents are bound to firm up for grade A buildings in certain pockets,” said Ashish Shah, chief operating officer of Radius Developers. Shah pointed out that the company’s commercial project ONE BKC in Mumbai’s business district Bandra-Kurla Complex had received just two pre-commitments until March 2015. Since then, in less than a year, the balance 3.5 lakh sq ft has been leased.
Srivasttava said Chennai might have seen stagnant rentals so far, but today there is a clear demand supply mismatch because of which rentals will rise in the future.