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Rise in office rentals


Rise in office rentals

Last updated: July 10 2007
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  • Rise in office rentals

    High demand and limited new supply have led to a rise in office rentals and capital values in most parts of NCR and Mumbai.

    While residential markets in both the National Capital Region (NCR) and Mumbai have taken a breather, or even seen small corrections, the office market continues to move upward. With demand exceeding supply, both rentals and capital values rose during the first quarter of 2007 in these cities. Altogether, 1.9 million sq ft of commercial office space was absorbed in the NCR between January and March this year. The IT-ITeS sector alone accounted for 65-70 per cent of total absorption.

    In the central business district (Connaught Place), rentals increased by 7-8 per cent over the last quarter of 2006, and by 50-80 per cent year-on-year. In the secondary business districts (Nehru Place, Bhikaji Cama Place, Saket and Jasola), rentals rose 15-20 per cent quarter on quarter, and 50-70 per cent increase year on year. Similarly, in Gurgaon rentals rose 20 per cent over the last quarter, and by 100 per cent year-on-year. Rentals rose steeply because of the shortage of space available for immediate rental. Only in Noida rentals remained almost the same as in the last quarter of 2006, though they increased 30-40 per cent year-on-year.
    Vacancy levels fell very low: 3 per cent in CBD and Gurgaon, and 6 per cent in the SBD areas. Only in Noida, the vacancy level was relatively high at 16 per cent. That’s the result of a large amount of supply entering this market last year. Altogether approximately 16 million sq ft of supply is expected to come into the NCR during 2007. Of this, Noida alone is expected to account for 5.6 million sq ft. This is far in excess of the projected absorption of 3.3 million sq ft. Rentals in Noida could either fall, or at best, remain stable.

    In Mumbai, about 0.75 million sq ft space was absorbed during the first quarter of 2007. Financial services, pharmaceuticals, telecom and IT-ITES sector were the key drivers of demand, accounting for 75-85 per cent of absorption. Here, too, because of limited supply, rentals rose across most micro-markets. Vacancy level remained at 2-3 per cent across most parts of Mumbai. Recently Citibank took up space in Nariman Point at Rs 550 per sq ft pm. However, rentals in off-CBD areas such as Worli and Lower Parel remained stable, since they had already risen very high during the last quarter of 2006. In the Bandra-Kurla Complex, rentals rose by around 15 per cent quarter-on-quarter.

    With IT-ITeS companies setting up base in Navi Mumbai, due to the availability of both manpower and real estate, rentals there touched Rs 60 per sq ft per month. Rents will continue to rise in 2007. They could stabilise in the second half of the year or in early 2008, when several office projects will be completed in BKC, Goregaon, Andheri (E) and the mill land developments in SBD. Also, with Mumbai Metropolitan Region Development Authority increasing the floor space index in BKC from 1.53 to 4, one could expect additional supply to enter the market.

    Source: Indian Express
    Date: 10/7/07
    Last edited July 10 2007, 11:06 AM.
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