Indian cities rank high in global office space rental yield report
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Mumbai: Bengaluru, Mumbai and Delhi offer the highest rental yield for office space among 20 leading business cities in the world, according to a report by global property consultancy Knight Frank LLP.
Bengaluru has a rental yield of 10.5%, while Mumbai and Delhi have rental yields of 10% and 9%, respectively, as per the report titled Global Cities-2016.
In simple terms, the annual rental income you earn, expressed as a percentage of the property purchase price, is the rental yield.
The report suggests annual rental income earned from office properties in these three cities, as a percentage of the property price, is the highest across leading business centres. These three cities are far ahead of other global cities, such as London and New York, that offer rental yields of 4%.
A high rental yield makes office properties lucrative investment bet.
The report attributed the robust growth in rental yields in India to expanding e-commerce firms and start-ups, which are pushing up demand for office space in the country.
Information technology (IT) and IT-enabled services (ITes) sectors, banking and financial services, and manufacturing firms have continued to add to the robust demand. “The Indian office market has been maintaining the healthy traction of 2014 and has clocked transactions of 18 million sq.ft in the first six months of 2015, and we expect the year to complete at around 40 million sq.ft, which is the highest since 2011,” said Shishir Baijal, chairman and managing director, Knight Frank India.
While the vacancy level in commercial office buildings in India is at 17%, the challenge is to get good quality office space across prime business districts where vacancy is in single digits, Baijal added.
Mumbai and Bengaluru also feature in the list of top five global cities in terms of future rental growth. Rentals in these cities are expected to grow at the rate of 22 and 16%, respectively.
“Indian office market is more skewed to leasing. So rental yield is very important,” said Samantak Das, chief economist and director (research), Knight Frank India.
Das said office markets across top cities in India are seeing strong growth backed by robust economic growth and focus on infrastructure and ease of doing business. “However, rentals across Mumbai and Delhi are still below the 2007 peak levels,” he pointed out.