With supply constraints showing no signs of easing, rentals of office space across India have risen in the July-September quarter of fiscal 2008, especially in Mumbai and Delhi.
The rentals are expected to continue to rise, said a report on the office markets released by real estate consultancy firm CB Richard Ellis.
The report says demand for office space in Bangalore was lower in the first two months of the quarter but picked up after that.
Office rentals in Mumbai are now at record levels. Dubai’s Nakheel Developers took 12,000 sq. ft in the Bandra-Kurla complex, Mumbai’s secondary business district, at an effective rent of Rs450 per sq. ft against what were prevailing rents of Rs381 per sq. ft, according to the report.
Effective rent is calculated on the basis of the actual area available for use to a tenant and accruals from security deposits paid to the landlord. Most developers compute rentals and capital values inclusive of the common areas.
That prices are still moving northward in the area was further underscored by the Jindal group buying Orbit Corp. Ltd’s 2.5 acre land in the vicinity for Rs700 crore, a bet on future increases.
In the city’s main business district Nariman Point, too, prices saw an upward trend with vacancy levels hovering around 1%. Multinationals such as ABN AMRO (at Sakhar Bhavan) have leased offices in the quarter at rents in the vicinity of Rs500 per sq. ft. Morgan Stanley leased 10,000 sq. ft office space at Peninsula Corporate Park in Lower Parel for Rs410 per sq. ft.
The continuing demand and the willingness of the clients to pay such high rentals has further “raised the expectation of landlords,” the report said.
In Delhi, too, rentals went up on robust demand as developers received pre-commitments for supplies hitting the markets next year.
There was also demand from the information technology sector for spaces located within special economic zones (SEZs), space that is expected to become available from the next quarter.
Manish Kashyap, managing director for transaction services at Richard Ellis, predicts rentals, especially in Delhi and Mumbai, would hold at their current levels as “we don’t foresee any fresh supply until the second half of 2008 (calendar year) or early 2009.”
Not everyone is so sure. Vivek Dahiya, director at DTZ, another real estate consultancy firm, expects “pressure on the central business district in Delhi will be eased in the short-term as three buildings will come into market—the DLF-MCD tower, which will release more than 250,000 sq. ft; the second tower of the Statesman House, which will release around 150,000 sq. ft; and a much smaller building at the Delhi Metro station, near the Supreme Court, for which bidding will start soon.” Still, he doesn’t expect it will have a significant impact on rental prices.
Rentals in the central business district in Bangalore were up marginally from Rs70 per sq. ft to Rs72 per sq. ft in the July-September quarter, the report said.