Top 10 office property markets that witnessed highest rental growth in Q2 2018: Colliers report

Rising demand, coupled with shrinking vacancies in Grade A and premium Grade A office spaces, have led to an increase in rentals of about 2.8-11 per cent QoQ, in key office micro-markets, says a report by Colliers Research

Indian cities witnessed strong office demand in Q2 2018, with about 12.6 million sq ft of gross absorption recorded, indicating a 10 per cent quarter-on-quarter (QoQ) growth, in office leasing activity. “As a result of such rising demand, coupled with shrinking vacancies in Grade A and premium Grade A office spaces, the office rental values have recorded an increase in most of the preferred micro-markets across cities,” said Ritesh Sachdev, senior executive director – occupier services, at Colliers International India.

According to Colliers Research, key micro-markets in Kolkata, Mumbai, Pune and Bengaluru, made it to the list of top 10 micro-markets, which witnessed maximum QoQ rental increase, in the range of 2.8-11 per cent in Q2 2018. The top 10 office micro-markets that witnessed the highest rental growth in Q2 2018, are as follows:

 

Kolkata – CBD

The central business district (CBD) in Kolkata recorded about 11 per cent QoQ growth in rents. Companies in the banking sector, such as RBL Bank and HDFC Ergo, expanded their office space in this micro-market in Q2 2018. In our opinion, proximity to the airport, is one of the key drivers for Kolkata’s CBD. However, limited availability of Grade A office space is likely to remain a challenge for occupiers looking to take up space in this micro-market.

 

Mumbai – Powai

Powai in Mumbai recorded a 6.3 per cent QoQ surge in rentals. Occupiers from diverse sectors, such as engineering, manufacturing, logistics and flexible workspace operators, were active in taking up space in 2018. Due to limited availability in existing stock, as suggested by the three per cent vacancy at the end of Q2 2018, rental values in this micro-market are witnessing an increasing trend.

 

Mumbai – Navi Mumbai

Navi Mumbai is evolving as one of the key destinations for office occupiers in recent times and recorded a 5.9 per cent rental rise in Q2 2018. In H1 2018, office demand in this micro-market, which constituted six per cent of the total absorption recorded in the city, was driven by varied sectors including pharmaceutical, manufacturing, BFSI, IT/ITeS and flexible workspace operators. The micro-market is expected to command higher rents going forward, aided by increasing demand from the BFSI sector for their back-office operations.

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

 

Bengaluru – north (Hebbal-Yelahanka)

One of the emerging micro-markets in Bengaluru, north (Hebbal-Yelahanka) saw a QoQ rental increase of 5.1 per cent in Q2 2018. The micro-market is fast rising, with Hebbal catering to the spillover demand from Outer Ring Road (ORR) and the availability of large floor plates in this micro-market, has been enticing occupiers in 2018. Occupiers from various sectors such as consulting, engineering and manufacturing and a few flexible workspace operators, have taken up space in north Bengaluru in Q2 2018.

 

Kolkata – PBD

Kolkata peripheral business districts (PBD) recorded a five per cent QoQ rental rise in Q2 2018. Recently, the Municipal Corporation of Kolkata started collecting property tax in the PBD areas of New Town and Rajarhat, thus, resulting in an uptick in the average asking rental values in the micro-market.

 

Pune – Bavdhan

Bavdhan in Pune saw a 4.2 per cent rise in rents QoQ. The rental rise can be attributed to limited availability in existing Grade A stock. Despite being a very small commercial micro-market, constituting mere two per cent of the overall stock in the city, it is able to command higher rents, as it is strategically located on NDA Road, in close vicinity to residential hubs and talent pool.

 

Pune – Bund Garden

Bund Garden recorded a four per cent QoQ rental increase in Q2 2018. The rental increase can be attributed to the growing preference for this micro-market, due to its proximity to the center of the city. About 10 per cent of the gross absorption in Q2 2018 in the city, was concentrated in this micro-market and was driven by IT/ITeS occupiers. The micro-market is expected to command higher rents going forward, due to limited availability in the existing stock.

 

Pune – Hinjewadi

Hinjewadi recorded a four per cent QoQ rental increase in Q2 2018. More than one-fifth of the gross absorption recorded in Q2 2018 in Pune, was concentrated in this micro-market and was driven by IT/ITeS companies taking up space in special economic zones (SEZ) developments. One of the factors responsible for growing preference for this micro-market by occupiers, is the enhanced connectivity with the residential hubs in the city, as offered by the upcoming metro in the region.

 

Pune – Hadapsar

Hadapsar recorded a rental rise of 3.5 per cent on sequential basis in Q2 2018. The micro-market has witnessed active interest, from occupiers looking for large floor plates.

 

Mumbai – Malad

Malad recorded a 2.8 per cent rental rise QoQ in Q2 2018. This micro-market is preferred by cost-sensitive occupiers, including flexible workspace operators, as it offers attractive rents as compared to other IT micro-markets in Mumbai.

“Demand from the technology and finance sectors should remain consistent, while flexible workspaces should gain prominence across cities. We expect three to five per cent year-on-year (YoY) increase in average rents, over the next three years. Additionally, premium buildings in strategic locations should contribute to the bulk of these rental increases,” maintains Surabhi Arora, senior associate director, research, at Colliers International India.

 

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