Limited supply of quality spaces is driving office rentals higher in major metro markets in India and indications are that they will go up in cities like Mumbai and Bengaluru over the next twelve months.
According to data released by global real estate consultancy Knight Frank, New Delhi's Connaught Place recorded a 2.1 per cent rise in prime office rentals in the July-September quarter, compared with the April-June quarter. The pace of rise in rentals in Connnaught Place was the second highest in the Asia Pacific region, following Thailand capital Bangkok, which saw rentals appreciate 4.4 per cent.
Elsewhere, office rentals in Bengaluru's technology hub also gained 1.4 per cent in the third quarter of 2017, despite 200,000 square meters of new supply being added, data showed.
In Mumbai, while prices in the prime Bandra-Kurla complex have remained steady over the same period, vacancy levels have dropped and with limited new supply entering the market, expectations are that prices will only go up over the next twelve months. Rentals are also expected to further go up in Bengaluru, projects Knight Frank.
When compared on a year-on-year basis, office rentals rose 8.8 per cent in in New Delhi's Connaught Place, 8.7 per cent in Bengaluru and 6.9 per cent in Mumbai's BKC.
“The prime office rentals are showing an upward trend. The quality supply is limited and we do see the upward pressure on rentals too in the coming 12-month period,” said Samantak Das, chief economist and national director–research at Knight Frank.
Despite new supply coming in, over the past few years, availability of quality commercial real estate has trailed demand, in most major metro markets of India. That coupled with increasing transparency through the implementation of regulations like Rera has attracted a slew of global private equity investors and sovereign wealth funds to the Indian market.
Last year, Canada's Brookfield Asset Management bought commercial and retail assets in Mumbai's upscale Powai area from the Hiranandani Group in a $1 billion deal.
In October this year, German insurer Allianz Group announced a partnership with construction company Shapoorji Pallonji Group to set up a $500 million real estate fund that will invest in commercial office properties.
Overall, the Knight Frank Asia-Pacific Prime Office Rental index, which covers 20 cities, showed in July-September quarter 11 cities saw increase in rentals and over the next one year, rentals are expected to rise or at least remain steady in 16 cities.
