Strong demand leads to rise in monthly office rentals

Strong demand for offices coupled with low vacancy have led to rental growth in IT/ITeS dominated cities such as Bengaluru, Hyderabad and Pune.

Rentals in office spaces have grown by more than 5 per cent on a Y-o-Y basis during the third quarter of 2019 as compared to the corresponding period in the previous year.

These cities are becoming preferred destinations for occupiers who are expanding their footprint. Availability of developable land and higher rental arbitrage is making it easier for occupiers to look at these cities.

Rentals are on a rise

The strong demand has restricted vacancy levels to single digits despite addition of more than five million sq. ft in Hyderabad and more than three million square feet in Bengaluru in Q3 2019.

Mumbai and Delhi-NCR are the only exceptions, where office rentals have not shown any movements.

In both these cities, their most sought-after business districts like BKC in Mumbai and DLF Cyber City in Delhi-NCR are experiencing vacancy levels less than 5 per cent with healthy rental movements.

However, as a whole, there are many peripheral and suburban business districts in these two cities, with high vacancies, leading to almost non-existent rental movements when observed from a macro-level.

City-wise trends - Top performers

Considered to be another milestone year for the city, year 2019 so far has witnessed an absorption of 4 mn sq. ft of Grade A space.

The continued expansion by IT/ ITeS occupiers combined with increasing interest from large co-working occupiers like WeWork led to a substantial increase in the rental values.

Hitec City drove the rental values with select projects commanding higher rentals when compared to the average market rates. As a result, average rents increased by 9 per cent on a Y-o-Y basis.

(The author is a Chief Economist and Head of Research & REIS, JLL India)