Renting, buying opportunity in office space; prices likely to rise

Renting, buying opportunity in office space; prices likely to rise

The current market scenario seems just right for those looking for office space for their businesses. In fact, they should hurry if the reports by property consultants DTZ International Property Advisors and BNP Paribas Real Estate and Infrastructure Advisory Services Pvt. Ltd are anything to go by. Both the reports predict an increase in prices of office space over the next one year.

Says Samarth Agarwal, research manager, DTZ International, “This is the right time to take office space, whether on rent or to buy. Most companies surveyed in our research say that their order books are full."

Also See Office Stats (PDF)

According to the DTZ report, titled Indian Office Occupiers Survey-December 2010, office market rental rates will increase by 10-15% across prime markets of National Capital Region (NCR), Bangalore and Mumbai over the next one year. “The signs of rental strengthening are now more visible and rents across the three cities are expected to grow from this point," says Agarwal.

The time is ripe even for those who want to invest in office space. There is good appreciation potential for those who can invest at the current price levels. In NCR, there is an estimated demand of 4 million sq. ft and it is likely to be met in the next six to nine months, according to BNP Paribas Real Estate City Report.

The BNP Paribas report says that in Delhi-NCR, there is a good demand from multi-national companies for special economic zones (SEZ). This would push up rentals in the SEZ space both in Noida and Gurgaon. In Mumbai, there is a lot of demand for office space from investors in Mumbai. BNP Paribas expects 5-10% rental appreciation in the next three-six months.

The DTZ report says that the increase in prices would primarily be due to the expansion of existing firms. Most companies looking for expansion are from the information technology (IT) and IT-enabled services industry, the DTZ report adds. Banking and financial services, infrastructure and telecom sectors will also fuel growth of the office market space by acquiring more space for expansion.

Says Sunil Dahiya, managing director, Vigneshwara Developers, involved in building business parks in Gurgaon and Manesar: “Apart from the regular services industry, a lot of outsourcing firms will look at expanding."

“Someone looking at investing in the office space market, should consider central business areas rather than peripheral regions. If you opt for a peripheral area, it would hedge your profit in terms of attracting customers or clients for your services," says Dahiya.

The BNP Paribas report corroborates Dahiya’s point. It says the central and alternate central business districts of Delhi and Mumbai are witnessing renewed interest from corporate tenants. While rental rates in Mumbai’s central areas may remain stable they may revise in Delhi and Bangalore’s central regions, adds the BNP Paribas report.

Graphics by Yogesh Kumar/Mint