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Priced Out


Priced Out

Last updated: April 17 2008
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  • Priced Out

    Prabhakar Sinha
    The Times of India (Delhi edition)

    Indian office space has witnessed one of the fastest appreciations in rentals, in the world, the latest survey by global consultancy firm Cushman & Wakefield reveals. Consultants and experts feel that this is a matter of concern as it clearly suggests that supply of office space is not keeping pace with the demand.

    Office space in Nariman Point, the central business district of Mumbai, and Connaught Place in Delhi, rank fifth and 10th among the costliest commercial sites of the world. Both of them have moved up by two ranks, since last year. The occupancy cost, including all the maintenance expenditure, for Nariman Point, is Rs 546 per sq ft per month, and for Connaught Place it is Rs 423 per sq ft per month. These rates have nudged Nariman Point and Connaught Place past the costliest areas in New York, Washington, Shanghai and Zurich.

    MD of CB Richard Ellis (South Asia), Anshuman Magazine, says if the trend continues for some more time, India will loose the advantage of being a cheap destination for companies to shift base from other countries. The fact that cities like Delhi and Mumbai are costlier than New York, Washington, Rome, Shanghai, Amsterdam and Zurich is not a matter of pride, rather an issue to be taken up by the government and civic/development authorities/agencies seriously.

    If India has to remain competitive in the international market, its real estate cost must be lower than that in the developed world. A senior consultant said the productivity of Indian workers is normally lower than those in developed countries. And hence, the real estate and other overhead costs should also be lower than those in the developed countries. Therefore, if India has to grow at around 9%, it must remain competitive in the global market, the consultant argues. As real estate has become an important ingredient in service sectors like information technologies, call centers, education and hospitals, keeping costs under check will help the country remain competitive in the global market and also in achieving high economic growth.

    In 2007, Indian cities witnessed some of the highest growths in rentals, as shown in the chart. But, as rentals have gone through the roofs, many companies are shifting their bases to other cities, and in some cases, particularly, in the call center segments, to other countries. So, at the present price points, it seems there will be a situation of over supply. This, some consultants feel, would lead to price correction over the next 12 months.

    As against India, its competitor China as a whole delivered a steady performance. Rents in mainland China registered an average growth of 5% over the year. Beijing is currently facing oversupply of high-grade space, and in consequence, rental growth was marginal.

    Shanghai also experienced an increase of 10% in rentals. Rentals at the best locations in Beijing and Shanghai are $48.43 per sq ft per year and $61.62 per sq ft per year, respectively. As against these, the highest rentals in Mumbai and New Delhi are $166.04 per sq ft per year and $124.53 per sq ft per year, respectively. Though the economic returns from the space in India and China are almost the same, the high rentals in Indian cities make them uncompetitive in the global market.

    Executive managing director of Cushman & Wakefield (South Asia), Sanjay Verma, says most micro markets in Mumbai saw an upward trend in rental values, largely due to lack of new supply because of project delays. Similarly, in Gurgaon in the National Capital Region of Delhi, prime supply has essentially met the pre-committed demand. Therefore, the fresh demand only pushed the rentals.

    However, the good news is that the high rental values witnessed across the country would not be sustainable beyond 12 months because of large supply that is going to come during the period.

    Among the Indian cities, Bangalore has witnessed one of the lowest growths in rentals, in the country. While rentals have increased by 20-26%, here, they are still among the lowest in the country, with prices ranging between Rs 44 per sq ft per month to Rs 73 per sq ft per month. This is mainly because of large supply of quality space in the city. Interestingly, Bangalore is witnessing one of the highest demands for space in the country. As against this, other cities like Kolkata witnessed one of the highest rises in rentals, at Rs 65 to Rs 70 per sq ft per month. Such rise in rentals is mainly due to the entry of better grade supply in a constrained office market.
  • #2


    Re : Priced Out

    Rental Growth

    Indian cities witnessed some of the highest growths in rentals, as shown in the chart. But, as rentals have gone through the roofs, many companies are shifting their bases in major metro cities and other small cities.


    • #3


      Re : Priced Out

      Such trends are directing companies to move towards small cities.


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