India witnessed a gross leasing activity amounting to 50 million sq ft in 2018, across the major seven cities, the highest in the past eight years, driven by buoyant leasing in Bengaluru and Delhi-NCR. Compared to 2017, gross leasing increased by 17 per cent, as occupiers continued to expand and consolidate. However, new completions in 2018 declined by 20 per cent compared to 2017, due to delays in construction that resulted in the deferment of new supply to later quarters.
“In Q4, the overall rental values increased by 2.5 per cent year-on-year (YoY) across major cities, against a backdrop of buoyant leasing and decline in new supply. Hyderabad noted the highest increase in rental values at eight per cent, followed by Bengaluru where rents increased by five per cent,” said Ritesh Sachdev, senior executive director, occupier services at Colliers International India. As per Colliers Research, key micro-markets in Bengaluru, Hyderabad, Chennai and Kolkata made it to the list of top 10 micro-markets, which witnessed maximum YoY rental increase in the range of 7.1-16.3 per cent in Q4 2018.
As per Colliers Research, the top 10 office micro-markets that witnessed the highest rental growth YoY in Q4 2018 are as follows:
Bengaluru – EPIP Zone/Whitefield
EPIP Zone/Whitefield in Bengaluru witnessed a YoY rental increase of 16.3 per cent in Q4 2018, as a number of occupiers executed expansion strategies and consolidation in this micro-market, leading to strengthening of rentals. Availability of large floor plates and Grade A developments, have been instrumental in attracting occupiers to consolidate operations.
The Namma Metro project is expected to start operations by 2022 and aligning with this timeline is a robust supply pipeline of 9.8 million sq ft, which is the second-highest in Bengaluru. We expect this micro-market to witness notable increase in rent at 8.3 per cent, compounded annually over 2018-2021.
Hyderabad – CBD
The CBD in Hyderabad witnessed a YoY rental increase of 15.8 per cent in Q4 2018, mainly due to an increase in demand for Grade A office space in Hyderabad.
Hyderabad witnessed heightened leasing activity by IT/ITeS occupiers, resulting in a gross absorption of 6.8 million sq ft in 2018, around 18 per cent higher than last year. We expect the occupier demand to remain strong, supported by the upcoming supply over the next three years and push average city rents by 2.3 per cent over 2018-2021.
Bengaluru – Bannerghatta Road
Bannerghatta Road in Bengaluru witnessed a YoY rental increase of 13.8 per cent in Q4 2018, with rents equating to Rs 70-95 per sq ft per month, at the end of December 2018. This is predominantly attributed to low vacancy levels and no visibility on upcoming supply.
Kolkata – CBD
The CBD in Kolkata witnessed a YoY rental increase of 10.5 per cent in Q4 2018. The companies in the banking sector expanded their office space in this micro-market in Q4 2018. The absence of new supply in the last three years, traction from the BFSI sector and proximity to the airport, are the key driving forces behind the micro-markets increased rental growth.
Chennai – OMR Post-Toll
OMR Post Toll in Chennai witnessed a YoY rental increase of approximately 10 per cent in Q4 2018. Rajiv Gandhi Salai (OMR), the designated IT corridor of Chennai has been witnessing significant demand in the pre-toll OMR corridor. This has resulted in a significant escalation in quoted rents in pre-toll OMR region, coupled with limited vacancy.
Companies that are looking at OMR as a destination for office space are moving to OMR Post-Toll region resulting in a healthy demand, constituting 19 per cent of the total office leasing in 2018. This corridor includes micro-markets like Pallavaram-Thoraipakkam Road (Radial Road), Thoraipakkam, Sholinganallur, Navalur and Siruseri. The availability of a mix of SEZ and non-SEZ spaces, with large contiguous floor plates and marginally lower rents, in comparison to pre-toll OMR, has prompted occupiers to consider this micro-market for their expansion plans.
Hyderabad – PBD
The peripheral business district micro-market, comprising of Pocharam, Uppaland and Shamshabad, is catering to occupiers looking for new Grade A facilities and IT parks. Low supply and high demand in this micro-market, resulted in a YoY rental increase of 9.1 per cent in Q4 2018.
Hyderabad – SBD
The SBD in Hyderabad continued to be the most preferred micro-market in Q4 2018, accounting for 91 per cent of the total office leasing the city. In Q4 2018, SBD recorded a rental increase of 8.3 per cent. Vacancy levels as low as four per cent, is pushing the rentals higher in this strategically located micro-market comprising Hitec City, Madhapur, Financial District Raidurg and the surroundings.
Bengaluru – Hosur Road
Hosur Road in Bengaluru witnessed a YoY rental increase of 8.1 per cent in Q4 2018. This is an emerging IT/ITeS micro-market in Bengaluru with competitive rental rates, primarily owing to its strategic location. This micro-market is in the peripheral area of the city and has the potential to develop large projects due to land availability. Also, single-digit vacancy levels amidst consistent demand by technology, consulting and flexible workspace operators, is leading to rising rents. A limited supply pipeline of 0.8 million sq ft during 2019-2021 is expected to further inflate rentals.
Bengaluru – Electronic City
The micro-market witnessed a YoY rental increase of 7.5 per cent in Q4 2018. It is one of the preferred micro-markets in Bengaluru, offering large floor plates and premium quality office spaces. Also, the micro-market is expected to receive an infrastructure upgrade, with the near completion of the Namma Metro project by 2022. In anticipation of this, many developers such as Bagmane, Ajmera and Salarpuria Sattva, among others, are planning commercial developments in the micro-market.
Bengaluru – Outer Ring Road (KR Puram-Hebbal)
Outer Ring Road (KR Puram-Hebbal) witnessed a YoY rental increase of 7.1 per cent in Q4 2018. The most active office destination in Bengaluru, Outer Ring Road (ORR) noted the maximum volume of absorption of 44 per cent in Q4 2018. We expect a massive supply pipeline of 13.7 million sq ft over 2019-2021, to temporarily cater to the rising demand.
However, infrastructure projects such as the proposed metro construction, are expected to waive occupier interest temporarily in this micro-market, most likely leading to further rental correction.