Among the top 10 micromarkets that witnessed the maximum YoY rental increase, 6 of these micromarkets were recorded to be in Bengaluru, with YoY increase ranging from 11% to 26%.
Real estate market in India is facing a slowdown currently. However, that doesn’t seem to be the case with the office property market. In fact, contrary to expectations, the first quarter of 2018 witnessed a remarkable 23% YoY (year on year) increase in the office space demand, with 11.4 mn sq ft of pan-Indian absorption recorded. With the intensifying office demand, rental values have also increased in a few active micromarkets across India in Q1 2018 in comparison to the rents in the same period last year, according to a research report by Colliers Research.
Among the top 10 micromarkets that witnessed the maximum YoY rental increase, 6 of these micromarkets were recorded to be in Bengaluru, with YoY increase ranging from 11% to 26%. However, other micromarkets including Kolkata, Delhi-NCR and Hyderabad also contributed to this list. Limited availability of Grade A office space in preferred micromarkets primarily led to the rental rise in select micromarkets in Delhi NCR, Kolkata and Hyderabad, says the report.
“The commercial real estate market is likely to remain robust with increased investor activity, sustained demand from technology companies and growing interest from various industry occupiers such as manufacturing, flexible workspace, logistics and warehousing. The demand will be well supported by Grade A new office supply of about 117.0 million sq ft, which is scheduled for completion over 2018-2020,” says Ritesh Sachdev, Senior Executive Director, Occupier Services at Colliers International India.
The top 10 office micromarkets that witnessed the highest rental growth in Q1 2018 are:
1. Bengaluru – Bannerghatta Road
Bannerghatta Road, characterized by large floor plates and stand-alone Grade A buildings, continued to see sustained demand from the existing IT/ITeS occupiers looking for expansion. High demand and low upcoming supply inflated the rents, resulting in a YoY increase of 26% in Q1 2018.
2. Bengaluru – CBD
Bengaluru CBD accounted for 11% of the total office leasing in Q1 2018. Low vacancy levels of 3% and limited supply escalated the rents, resulting in a YoY increase of 25% in Q1 2018.
3. Bengaluru – Electronic City
Electronic City is home to IT giants such as Siemens, Infosys, HP, etc. The demand in this micromarket is driven by prevailing companies looking to expand within the location and the availability of large floor plates of above 70,000 sq ft size, resulting in a rental increase of 17.6% YoY.
4. Bengaluru- SBD
Indiranagar and Koramangala are the main commercial hubs in Bengaluru SBD and accounted for demand of about 12% of total Bengaluru’s office leasing volume in Q1 2018. This micromarket witnessed a rental increase of 14.3% YoY. An upcoming supply of 1.14 million sq ft is expected to stabilise the rents by the end of this year.
5. Kolkata-Sector V
Sector V micromarket of Kolkata recorded a 14% YoY escalation in rents in Q1 of 2018. This could be attributed to the increasing demand for small to medium-sized office spaces.
6. Bengaluru – Outer Ring Road (K.R. Puram – Hebbal)
The most active office destination in Bengaluru, Outer Ring Road (ORR) furnished the maximum volume of absorption of 44% in Q1 2018. A supply pipeline of 5.5 million sq ft is likely to temporarily cater to the rising demand. However, infrastructure projects such as the proposed metro construction are expected to waver occupier interest temporarily in this micromarket and most likely to lower the rents.
7. Delhi – Aerocity
Delhi Aerocity has seen the maximum traction in office leasing in Q1 2018. CBD and Aerocity cumulatively contributed to 40% of the Grade A office leasing. The grade A buildings and proximity to the airport have increased the attractiveness of the micromarket, and hence recorded a YoY rental increase of 11.8%.
8. Bengaluru – EPIP/Whitefield
In Q1 2018, Whitefield micromarket witnessed an increase of 11.1% YoY. Whitefield is gearing up to replace ORR as the commercial hub of Bengaluru in the coming years.
Connaught Place, the CBD area of Delhi-NCR, witnessed a YoY rental increase of 10.8%. An increased traction in the micromarket is being witnessed owing to demand from the occupiers of financial services, pharma and manufacturing sectors. Also, the lack of Grade A new supply in SBDs and expiration of lease agreements in this region caused the high rental rise in the micromarket.
Hyderabad SBD continued as the most-preferred micromarket in Q1 2018, accounting for 91% of the total office leasing the city. In Q1 2018, SBD recorded a rental increase of 10.7%. Vacancy levels as low as 4% is pushing the rentals higher in this strategically located micromarket comprising Hitech city, Madhapur, Financial District Raidurg and the surroundings. However, a supply pipeline of 7 million sq ft is scheduled to be completed by the end of 2018. Therefore, rents are likely to stabilise over 2018-2020.