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Mumbai: Office rentals are rising in India’s top three cities as premium buildings run out of space due to rising demand and the lack of fresh supply of quality spaces.

Most premium office buildings in Mumbai, Delhi and the National Capital Region (NCR), and Bengaluru are fully leased out, while a few of them have vacancies of 2-5%.

In Mumbai’s financial hub of Bandra Kurla Complex (BKC), prime office buildings such as One BKC, The Capital, Trade Centre and Platina are 90-100% leased out, company executives and property advisors said. Cybercity and Two Horizon Center, DLF’s office space buildings in Gurgaon are 95% occupied, an executive at the developer said, asking not to be identified.

Bengaluru-based commercial real estate firm RMZ Corp., which owns around 15 million sq. ft of office space across six properties in the city, said it has about 2% vacant space. RMZ’s office buildings in Delhi and Mumbai are fully leased out.

As per global property adviser JLL’s estimates, overall supply of office space in India is pegged at 40 million sq. ft in the next one year. Of this, about 70% or less than 30 million sq. ft is in grade A office buildings. But the forecast for office absorption stands at around 33-34 million sq. ft over the next one year. Last year, net absorption across seven cities was 36.5 million sq. ft.

In Bengaluru, where office absorption was the highest in the country at 10.8 million sq. ft last year, rental values of prime commercial properties have shot up by as much as 20% in the last one year.

“Rentals are moving up because there is dearth of supply and also because of improving qualities. Amenities are getting better. Inflation has also moved up. So overall costs, including construction and land are also rising," said Thirumal Govindraj, managing director (management), RMZ Corp., adding that rentals will move up further over the next one or two years.

He said at the company’s under-construction Ecoworld office building in Bengaluru, deals are being closed at a monthly rental of Rs80 per sq. ft, against Rs60-65 last year. At its Infinity building on Old Madras Road, rentals are about Rs90 per sq. ft now, from Rs76-77 last year.

Monthly rentals in Mumbai have risen by around 3-8% in the last one year, according to JLL estimates. But in a few prime buildings at BKC, rents have remained unchanged, for instance in Wadhwa Group’s Trade Centre and The Capital, which are 100% leased out. At present, rents at most commercial buildings in the area hover between Rs230 and Rs320 per sq. ft—among the highest in Mumbai.

Growth in rental values in a few good assets in Mumbai has exceeded 10%—such growth was last seen five years ago, said Ashutosh Limaye, head (research), at JLL India. “While it (rents) has grown over the last few years, the margin of growth has been smaller by around 2-3%. However, rentals in a few select properties have appreciated by around 5-10%," he said.

Commercial real estate rentals are likely to rise further in the next one year with no significant fresh supply expected over the next two years, while demand, particularly from the information technology and pharmaceutical sectors, is continuing to grow, said developers and real estate advisors.

“Most of the new commercial projects in Lower Parel, Wadala and the western suburb region in Mumbai are still on the drawing board. Even if it were to come back in the market, supply wouldn’t probably hit the market till about 2019-20," said Gautam Saraf, managing director (Mumbai), Cushman & Wakefield. While prices of commercial properties may rise by 5% in 2017, rentals may see a double-digit growth in the next one year, he added.

In Delhi-NCR, rents in DLF’s Cybercity are currently at around Rs105-Rs115 per sq. ft, as per JLL’s latest monthly real estate monitor. A year ago, they were around Rs95-100 per sq. ft. However, at the company’s Two Horizon Center located on the prime Golf Course Road area in Gurgaon, rentals have crossed Rs125 per sq. ft, the DLF official quoted earlier said.

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