Top 10 office markets that witnessed highest rental growth in Q1 2018: Colliers report

Of the ten office micro-markets that witnessed highest rental growth in Q1 2018, six are from Bengaluru, with the year-on-year increase ranging from 11-26 per cent, says a report by Colliers Research

The first quarter of 2018 witnessed a remarkable 23 per cent year-on-year (YoY) increase in office space demand, with 11.4 million sq ft of pan Indian absorption recorded. With the intensifying office demand, rental values have also increased in a few active micro-markets across India, in Q1 2018, in comparison to the rent in the same period last year.

As per Colliers Research, among the top 10 micro-markets that witnessed maximum YoY rental increase, six of these micro-markets were recorded to be in Bengaluru, with YoY increase ranging from 11-26 per cent. However, other micro-markets from Kolkata, Delhi-NCR and Hyderabad, also contributed to this list. Limited availability of Grade A office space in preferred micro-markets, primarily led to the rental rise in select micro-markets in Delhi NCR, Kolkata and Hyderabad.

“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 like manufacturing, flexible workspaces, logistics and warehousing. The demand will be well supported by new Grade A office supply of about 117.0 million sq ft, which is scheduled for completion over 2018-2020,” said Ritesh Sachdev, senior executive director, occupier services at Colliers International India.

 

Office micro-markets with highest rental growth in Q1 2018

Bengaluru – Bannerghatta Road

Bannerghatta Road, characterised by large floor plates and stand-alone Grade A buildings, continued to see sustained demand from existing IT/ITeS occupiers looking for expansion. High demand and low upcoming supply inflated the rents, resulting in a YoY increase of 26 per cent in Q1 2018.

See also: Office space leasing rises by 23 per cent in March quarter: Colliers International

Bengaluru – CBD

Bengaluru CBD accounted for 11 per cent of the total office leasing in Q1 2018. Low vacancy levels of three per cent and limited supply escalated the rents, resulting in a YoY increase of 25 per cent in Q1 2018. However, we forecast the rents to stabilise by the end of 2018, owing to 0.3 million sq ft office space scheduled for completion.

Bengaluru – Electronic City

Electronic City is home to IT giants such as Siemens, Infosys, HP, etc. The demand in this micro-market is driven by prevailing companies looking to expand within the location and the availability of large floor plates of over 70,000 sq ft in size, resulting in a rental increase of 17.6 per cent YoY.

Bengaluru – SBD

Indiranagar and Koramangala are the main commercial hubs in Bengaluru SBD and accounted for about 12 per cent of Bengaluru’s total office leasing volume in Q1 2018. This micro-market witnessed a rental increase of 14.3 per cent YoY. An upcoming supply of 1.14 million sq ft is expected to stabilise rentals by the end of this year.

Kolkata – Sector V

The Sector V micro-market recorded a 14 per cent YoY escalation in rents in Q1 2018. This could be attributed to the increasing demand for small to medium-sized office spaces. A noteworthy transaction in Q1 2018, which supports the same is by Tega Industries, leasing 40,000 sq ft. We anticipate the rents to remain stable till the end of 2018, owing to an upcoming supply of 1.2 million sq ft.

Bengaluru – Outer Ring Road (KR Puram – Hebbal)

The most active office destination in Bengaluru, Outer Ring Road (ORR) furnished the maximum volume of absorption of 44 per cent in Q1 2018. We expect a supply pipeline of 5.5 million sq ft 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 micro-market and most likely, to lower the rents. In Q1 2018, ORR witnessed a rental increase of 12.7 per cent YoY.

Delhi – Aerocity

Delhi Aerocity has seen maximum traction in office leasing in Q1 2018. CBD and Aerocity cumulatively contributed to 40 per cent of the Grade A office leasing. The Grade A buildings and proximity to the airport, have increased the attractiveness of the micro-market and hence, recorded a YoY rental increase of 11.8 per cent.

Bengaluru – EPIP/Whitefield

In Q1 2018, Whitefield micro-market witnessed an increase of 11.1 per cent YoY. Whitefield is gearing up to replace ORR as the commercial hub of Bengaluru, in the coming years. A supply pipeline of around eight million sq ft in different stages of construction and completion of the metro rail project, should provide impetus to the demand. Thus, we expect the rentals to further rise in the upcoming years.

Delhi – CBD

Connaught Place, the CBD area of Delhi NCR, witnessed a YoY rental increase of 10.8 per cent. We are witnessing increased traction in the micro-market, owing to demand from occupiers in the 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 this micro-market.

Hyderabad – SBD

Hyderabad SBD continued as the most preferred micro-market in Q1 2018, accounting for 91 per cent of the total office leasing in the city. In Q1 2018, SBD recorded a rental increase of 10.7 per cent. Vacancy levels as low as four per cent, is pushing rentals higher in this strategically located micro-market, comprising HITEC City, Madhapur, Financial District Raidurg and the surroundings. However, a supply pipeline of seven million sq ft is scheduled to be completed by the end of 2018. Therefore, we expect the rents to stabilise over 2018-2020.

“Over the next three years, planned infrastructure enhancements, such as the metro rail and road improvement projects, should further fuel the demand in cities like Bengaluru and Mumbai. We expect three to five per cent YoY increase in average rents over 2018-2020, across Indian cities. Rising preference for premium buildings in strategic locations among occupiers, should contribute to the bulk of the rental increase going forward,” maintains Surabhi Arora, senior associate director, research at Colliers International India.

 

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