News Point: Rising demand coupled with shrinking vacancies in Grade A and premium Grade A office spaces has led to rental rise of about 2.8%-11% QoQ in key micro markets, finds Colliers Research.
Indian cities witnessed a strong office demand in Q2 2018, with about 12.6 million sq ft of gross absorption recorded, indicating a 10% 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” says Ritesh Sachdev, Senior Executive Director, Occupier Services at Colliers International India.
According to Colliers Research, key micromarkets in Kolkata, Mumbai, Pune, and Bengaluru made it to the list of top ten micromarkets, which witnessed maximum QoQ rental increase in the range of 2.8%-11.0% 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% QoQ growth in rents. Companies in banking sector such as RBL Bank and HDFC ERGO expanded their office space in this micromarket in Q2 2018.
Colliers report finds that proximity to Airport is one of the key driver 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 6.3% 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 3% vacancy at the end of Q2 2018, rental values in this micromarket 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 has recorded 5.9% rental rise in Q2 2018. In H1 2018, office demand in this micromarket, which constituted 6% 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 BFSI sector for their back-office operations.
Bengaluru – North (Hebbal-Yelahanka)
One of the emerging micromarket in Bengaluru, North (Hebbal-Yelahanka) saw a QoQ rental increase of 5.1% in Q2 2018.
The micro market is fast rising with Hebbal catering to the spill over demand from Outer Ring Road (ORR) and 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 5.0% QoQ rental rise in Q2 2018. Recently, the Municipal Corporation of Kolkata has 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% rise in rents QoQ. The rental rise can be attributed to limit availability in existing Grade A stock. Despite being a very small commercial micromarket, constituting mere 2% 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 4.0% QoQ rental increase in Q2 2018. The rental increase can be attributed to the growing preference for this micromarket due to its proximity to the center of the city.
About 10% of the gross absorption in Q2 2018 in the city was concentrated in the micromarket and was driven by IT/ITeS occupiers. The micromarket is expected to command higher rents going forward due to limited availability in the existing stock.
Pune – Hinjewadi
Hinjewadi recorded 4.0% QoQ rental increase in Q2 2018. More than one-fifth of the gross absorption recorded in Q2 2018 in Pune was concentrated in this micromarket 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 micromarket 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% on sequential basis in Q2 2018. The micromarket is being active in enticing occupiers looking for large floor plates.
Mumbai – Malad
Malad recorded 2.8% rental rise QoQ in Q2 2018. This micromarket is preferred by cost-sensitive occupiers including flexible workspace operators as it offers attractive rents as compared to other IT micromarkets in Mumbai.
“Demand from technology and finance sectors should remain consistent while flexible workspaces should gain prominence across cities. We expect 3%-5% YoY increase in average rents over the next three years. Additionally, premium buildings in strategic locations should contribute to the bulk of these rent increases,” says Surabhi Arora, Senior Associate Director, Research at Colliers International India.
