In 2015, demand for quality office space pushes up rentals by 20%: CBRE

From Livemint

Mumbai: Office rental growth saw a record jump in most key micro-markets in India with a few prime destinations growing by over 20% in 2015.

Monthly rentals for offices at Cyber City, an industrial park in Gurgaon, grew by 22%, the highest in 2015, followed by Chennai’s Old Mahabalipuram Road (OMR), which grew by 20%, according to property consultant CBRE.

Bengaluru, which led the field in absorption of office space in the year, saw monthly rentals shoot up by as much as 17% in some areas.

Limited availability of quality office space in most prime locations and increasing demand for them, particularly from information technology (IT) firms and e-commerce firms, pushed up the monthly rentals of some of the new leases last year, according to property advisers and company executives.

“Last year saw the highest rental growth in most of the key markets. Firstly, there is lack of quality office space, and secondly, historical rentals in some of the destinations like Cyber City have always been high. So when new leases were signed last year, it further pushed up the monthly rentals of these places,” said Ram Chandnani, managing director (transaction services), CBRE South Asia Pvt. Ltd.

India’s largest real estate firm, DLF Ltd, which developed Cyber City, confirmed that office rentals have gone up by 15-20% in the area over the past year. The industrial park, wholly owned by the firm’s rental arm DLF Cyber City Developer Ltd, has the offices of leading global firms like PepsiCo, IBM and Samsung, and earns around Rs.2,200 crore a year from rentals.

At present, rentals at Cyber City range between Rs.105 and Rs.115 per sq. ft per month.

Rentals have reflected an upward trend in DLF Cyber City with approximately 15-20% increase over the previous year. Cyber City attained 98% occupancy by the end of the year. Majority of the office demand has been driven by captive global offshoring centers, multinational e-commerce companies and corporate offices,” said a DLF spokesperson.

The company’s other developments in Chennai and Hyderabad have also shown an upward rental trend, growing by 7-8% in 2015 over the previous year and continue to show a high occupancy rate of 98-99%, the spokesperson added.

Real estate firm K Raheja Corp., which operates office buildings under the brand Mindspace in Mumbai, Hyderabad and Gandhinagar, said rentals have also grown in the micro-markets of these cities due to rising demand, particularly from IT and IT-enabled services (ITeS) firms.

“The real development has been seen in the IT and ITeS across markets. Established markets have seen an increased demand and diminished supply, leading to an upward rental pressure,” said Vinod Rohira, managing director (commercial real estate), K Raheja.

Monthly rentals of most of its office buildings saw a growth of more than 10% last year and are likely to further rise by another 10-15% this year, he added.

Rohira said that, due to the supply constraints within the prime locations, new micro-markets have emerged within and outside the city. For instance, markets such as Navi Mumbai, peripheral areas of Hyderabad and the eastern suburbs of Pune are in high demand, he added.

Colliers International, another property consultant, said rentals are likely to further strengthen in most of grade A office spaces in almost all micro-markets across India.

According to its office market report released this week, Mumbai and the national capital region (NCR) saw office transaction volumes reach a “post-recession high” of 6.57 million sq. ft and 9.10 million sq. ft, respectively, in 2015. While absorption almost doubled in Mumbai, the NCR saw an 18% increase. Bengaluru was the highest among the eight top cities, with around 13 million sq. ft of absorption in 2015.

Last year, Colliers recorded around 40.21 million sq. ft of office space lease transactions across the top eight cities, an increase of more than 15% year-on-year.

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