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Business News/ Companies / Office rentals at some commercial hubs recover, back at peak levels
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Office rentals at some commercial hubs recover, back at peak levels

Greater demand for quality office space, coupled with weak supply in prime commercial locations, has aided the recovery, consultants and developers say

A file photo of a commercial building in Bengaluru. Prime commercial hubs in Bengaluru, Pune and Chennai have either reached or surpassed the 2008-peak level in the last one year, as per JLL data. Photo: Hemant Mishra/MintPremium
A file photo of a commercial building in Bengaluru. Prime commercial hubs in Bengaluru, Pune and Chennai have either reached or surpassed the 2008-peak level in the last one year, as per JLL data. Photo: Hemant Mishra/Mint

Mumbai: Office rentals that crashed after the global financial crisis of 2008 have finally recovered, with rates at some of the commercial hubs regaining the peaks of nine years ago. Greater demand for quality office space, coupled with weak supply in key prime locations, has aided the recovery, consultants and developers said.

According to data compiled by property advisor JLL India, office lease rates in Delhi declined 41.6% in 2009, while prime areas of Gurugram saw a fall of 31.1%. Meanwhile, rents in Mumbai and Bengaluru fell by 34.3% and 17.7% respectively.

While prime commercial hubs in Delhi, Mumbai and Kolkata are still recovering, Bengaluru, Pune and Chennai have either reached or surpassed the 2008-peak level in the last one year, as per JLL data.

Hyderabad, which saw a rental growth of 6.8% last year, is likely to touch the 2008 peak in the coming quarters, and prime areas of the national capital region (NCR) and Mumbai suburbs are also fast recovering, it said.

So far this year, the quantum of net absorption and fresh supply of premium office space have remained mostly unchanged, standing at around 28.6 million sq. ft and 28.4 million sq. ft, respectively. Similarly, in 2016, while 34.9 million sq. ft, of office space were delivered, net absorption stood at 33.5 million sq. ft, as per JLL data.

According to Sriram Khattar, managing director of rental business at DLF Ltd which has a strong presence in Gurugram, rentals will see a healthy growth in the coming year as demand continues to remain strong. “The rentals should be in line with the normalised growth seen in the last couple of years," he said.

According to Vivek Rachh, director of Pune-based Panchshil Realty, rentals in parts of South Mumbai like Nariman Point have not reached their previous peaks while other cities like Pune have, as the demand drivers for both the cities are different. “Mumbai, being a gateway city, was a far more evolved market then (before 2008)," he said. Apart from operating several prime commercial properties in Pune, Panchshil Realty also jointly owns Express Towers at Nariman point along with global private equity firm Blackstone Group Lp.

However, limited supply of grade A office buildings and strong demand in prime locations like Bandra Kurla Complex (BKC) in Mumbai has continued to push rentals, and is likely to see steady growth in the next year as well. “While rentals in Mumbai have not increased drastically in the last 10 years, it will grow in the coming two-three years as not many developers are bringing in new office supply in the prime locations apart from the suburbs," Karan Singh Sodi, managing director (Mumbai), JLL India said. At present, only 11% of developers in Mumbai are building commercial real estate while the are into residential segment, he said.

Samantak Das, chief economist and national director (research), Knight Frank India agreed that steady demand has reduced vacancy levels at BKC. This would put pressure on the rentals, he said, adding the limited supply of quality office space would push rentals for the next 12 months across the prime commercial districts in Mumbai, Delhi and Bengaluru.

“There is solid demand for quality space despite concerns in the market in the last 12 months. There were concerns about what is going to happen because of the US election and the potential slowdown in the information technology industry," said Mike Holland, chief executive officer (CEO) at Embassy Office Parks.

The Bengalaru-based commercial real estate company, which owns and manages around 20 million sq. ft of office space, has seen a 15% rental growth per annum in the last four years, he said.

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Published: 18 Dec 2017, 02:36 AM IST
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