Office segment of the Bengaluru and New Delhi real estate markets are now the third and fourth fastest growing office markets globally in terms of prime rental. By the end of this year, Bengaluru is expected to witness a 6.6% growth over 2018 office rental values and New Delhi is expected to see a rise of 6.5% in prime rental values in 2019.
As per the global report by Knight Frank India, with demand remaining buoyant in the market from the IT/ ITeS and the start - up sectors, the dearth of quality space in key markets is making the rentals dearer. The report mentioned that the Bengaluru, which saw a prime rental value of Rs 125 psf/month in 2018 was mainly on account of low Grade A supply in prime markets.
Mirroring the same trend, New Delhi with prime rental values of Rs 326 psf /month, is mainly on the back of constricted fresh supply in 2019. However, Mumbai prime office rentals are expected to remain largely stable with an estimated growth of only 0.3% in 2019. The recorded rental for prime markets in the city is approximately Rs 300 psf/month, largely due to demand which is routing itself to secondary and peripheral locations due to high rental values in prime markets.
“This rental growth is also the prime reason for increased interest from institutional investors in acquiring income yielding assets in the commercial segment,” Shishir Baijal, Chairman and Managing Director, Knight Frank India, said.
Further, vacancy rate is expected to improve in New Delhi and Mumbai with current 16.5% (2018) and 19.8% (2018) to 15% (2021) and 14% (2021), indicating an increase in employment generation, whereas Bengaluru remains the same at 3.2%, mentioned the Knight Frank global outlook report 2019.
“Commercial segment continues to show growth in 2019, much like the year past when leasing activities breached the 46 million square feet and touched a historic high. However, the supply side has not been as robust, keeping rental growth positive in the same time,” said Baijal.
The report highlights that Melbourne and Sydney will see the largest rental growth in 2019 with rents rising 10.1% and 8.6% respectively. Both are experiencing tight supply in their office markets due to the sustained strength of employment growth and relatively low levels of development completions in recent years. Prime rents have been rising rapidly in both markets, up by 13% in Sydney and 6% in Melbourne over the past year.
“Occupiers face two contradictory pressures in 2019. The geo-political threats, like BREXIT and the US/China trade war, make it difficult for firms to plan the future. However, business pressures to expand market share, recruit talent and enter new markets, are pushing them to address their property needs,” said William Beardmore-Gray, Head of Occupier Services and Commercial Agency, Knight Frank.
Across the global markets, uncertainty surrounding trade tensions and political events has led to a pause in the development pipeline, causing low vacancy rates and driving rental growth up. “Limited supply of new offices, following years of under development, mean that many occupiers will feel compelled to enter the market in 2019, and acquire space before someone else takes their preferred option for a future headquarters building,” said Gray.
Over the next three years, global markets, generally short of high quality supply, will see further demand from both tech and co-working occupiers as new waves of the digital revolution maintain growth momentum for office demand in tech-orientated global cities.