Office rentals stagnate in Delhi, Mumbai, but shoot up in Bengaluru, Hyderabad

Mumbai and Delhi-NCR are the only exceptions where office rentals have not shown any movements. (Representational image)

Office rentals had a mixed experience during the third quarter of the 2019 calendar year (CY), with rates in the top 2 metros — Delhi and Mumbai — almost stagnating on account of high vacancies in peripheral and suburban business districts.

On the other hand, office rent in cities like Hyderabad, Bengaluru and Pune, which are dominated by IT/ITeS companies, climbed as much as 9% y-o-y during July-September 2019.

According to the Q3 2019 numbers by real estate consultancy JLL India, office rentals surged by 9% in Hyderabad, while rent was up by 6% and 5% in Bengaluru and Pune, respectively. Rates declined, albeit marginally by 1%, in Delhi-NCR. Rentals rose just 1% in the Mumbai Metropolitan Region.

“Strong demand for offices coupled with low vacancy have led to rental growth in IT/ITeS-dominated cities such as Bengaluru, Hyderabad and Pune. Rentals in office spaces have grown by more than 5% on a y-o-y basis during the third quarter of 2019 as compared to the corresponding period in the previous year,” said JLL India’s chief economist and head of research & REIS, Samantak Das.

These cities are becoming preferred destinations for occupiers who are expanding their footprint. Availability of developable land and higher rental arbitrage is making it easier for occupiers to look at these cities, he told FE.

Das explained that strong demand has restricted vacancy levels to single digits despite addition of more than 5 million sq ft of office space in Hyderabad and more than 3 million square feet in Bengaluru in Q3 2019.

“Mumbai and Delhi-NCR are the only exceptions where office rentals have not shown any movements. In both cities, their most sought-after business districts like BKC in Mumbai and DLF Cyber City in Delhi-NCR are experiencing vacancy levels less than 5% with healthy rental movements. However, as a whole, there are many peripheral and suburban business districts in these two cities, with high vacancies, leading to almost non-existent rental movements when observed from a macro level,” he added.

With a limited supply of Grade A commercial properties in Mumbai, select sub-markets like BKC are tilting towards becoming landlord-favourable and rents are expected to go up in the short term, Das said, adding that Delhi-NCR’s story is no different. DLF Cyber City is a burning example where healthy upward pressure in rental momentum already being observed.