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NEW DELHI: Bengaluru saw the highest growth in rental values among cities in the Asia Pacific (APAC) region in the March-ended quarter, rising 5.8% sequentially, according to the Asia-Pacific Prime Office Rental Index by Knight Frank.

The APAC regional index registered an increase of 0.8% quarter-on-quarter (QoQ), having risen 0.3% in the preceding quarter, as most countries in the region are now opening up for global business leading to stability in economic activities.

The overall index is up 0.2% on a yearly basis. Of the 23 cities tracked by Knight Frank’s Asia-Pacific Prime Office Rental Index, 21 cities recorded stable or increasing rents in Q1 2022, as compared to 13 in the previous quarter.

APAC region office rents for March quarter.
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APAC region office rents for March quarter.

Hong Kong special administrative region (SAR) continued to be Asia’s most expensive office market, costing $186 per square feet for a year. The Delhi-NCR region was the 9th most expensive market at $ 60/sq ft/year. While Mumbai at $50.9/sq ft/year and Bengaluru at $ 26.7/sq ft/year held positions of 15th and 21st positions in terms of most expensive office locations respectively.

According to Knight Frank, this is despite a turbulent Q1 with accelerating inflation and Russia's invasion of Ukraine weighing on market sentiment.

Further, vacancy rate declined for the second consecutive quarter and was at 13.1% in the March quarter for the APAC region. “This should start to reduce further as more Asia-Pacific markets start to open their economies and employees steadily return to work in the CBDs," Knight Frank said in a report.

According to the report, with the change in covid–19 protocols, which are now leading more and more companies to call back their employees, there has been an uptick in transaction activities in the Bengaluru. Adding to that, new completions have been deliberately kept low, keeping values intact in the city. The city is expected to see an upward trend in its rental values over the next 12 months. Bengaluru currently has an office inventory of 17.5 million sqm, with a vacancy level of 12.6%.

Shishir Baijal, chairman and managing director, Knight Frank India, said, “The Indian office market scenario has started to improve since the removal of covid-19 related restrictions. More companies are recalling their staff to office. Further, with the IT/ ITeS sector hiring upwards of 20% new staff in the last 18 – 24 months, demand for office space is expected to rise further."

Notably, Bengaluru and NCR witnessed a rise in leasing activities in Q1 2022 with the cities recording transactions of 3.5 million square feet (msf) and 2.3 msf, respectively.

“The rental outlook for Bengaluru is strong, indicating a possible increase in values in the coming year, based mostly on the expected rise in demand," Baijal added.

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