Shortage of prime commercial space pushes up office rent

Shortage of prime commercial space pushes up office rent
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First Published: Wed, Apr 18 2007. 03 36 AM IST
Updated: Wed, Apr 18 2007. 03 36 AM IST
Mumbai: Amid signs that the residential-property market is flattening out, office rents have continued moving up in recent months. And what’s driving the rise is the severe shortage of prime commercial space.
Estimates of the increase in office rents vary in the 15-20% range over the last six months. Predictably, the IT sector has been the major driver in lease rentals. A study by real-estate consultants CB Richard Ellis estimated that these companies accounted for 80% of the offtake.
Financial institutions too are big players in the market. Entities like BNP Paribas, Delta Capital Management and UTI Bank have been among the major deal makers in Mumbai and New Delhi.
The severe shortage of ‘A’ grade office space has led to developers and companies entering into pre-lease agreements, sometimes even before construction starts. Banks such as Barclays and Credit Suisse have been fuelling such deals as they move from scattered office spaces to consolidated headquarters.
In Mumbai, lease rentals in prime areas such as Nariman Point and Worli have seen deals being struck for more than Rs400 per sq. ft per month.
The Richard Ellis report says lack of good-quality commercial space in traditional business areas has pushed up rentals in the city’s emerging districts such as Parel, the Bandra-Kurla Complex and even Andheri East.
In Delhi, the situation is marginally better with higher supply available in the outer business areas located in the Capital’s suburbs of Noida and Gurgaon. Also helping is the fact that companies are moving out of the central business areas such as Connaught Place to secondary locations.
Office space supply is expected to be strong in Jasola as well as Saket and Bhikaji Cama Place in South Delhi. Dwarka, with several sites going under the hammer, is also expected to emerge with new supply by the end of the year. Significant deals reported by Richard Ellis in these areas include those struck by NEC, Porsche, Maersk and Texas Instruments.
Moreover, Delhi’s master plan is expected to allow mixed-land use in residential areas. This will allow the conversion of old residential buildings to commercial properties, which will also increase supply. The demand-supply matrix is at play in Bangalore as well. The city saw hectic activity with as much as 13 million sq. ft of office space absorbed through 2006. But while there was no new supply in the central business areas such as Murphy Road, in outer areas such as Whitefield, where more than five million sq. ft is expected to hit the market, rents have eased.
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First Published: Wed, Apr 18 2007. 03 36 AM IST
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