The growth in office rental values across most micro markets of top office destinations in India has started to witness a slowdown vis-à-vis last year’s rentals. In fact, according to an office market report by international property consultants Cushman and Wakefield, despite an overall upward trend in rental values in all micro markets, the rate of increase varied and exhibited a downward movement across cities.
For instance, the rental growth rate in the Delhi’s central business district (CBD) has significantly declined through the first quarter to the third quarter of the current calendar year, from 26 per cent to 5 per cent and 20 per cent across the three quarters vis-à-vis last year’s 76 per cent during the same period. Last year’s high growth within the NCR could also be attributed to the sealing drive by the Municipal Corporation of Delhi in 2006 that had put pressure on rentals.
In Mumbai, rental values in Nariman Point and Worli have appreciated by approximately 33 per cent to 34 per cent in first three quarters of 2007. In the same period in 2006, Worli had witnessed a remarkable 72 per cent increase in the rentals while Nariman Point had recorded 40 per cent increase. The rental values reached a high price point and have therefore witnessed only a marginal increase this year.
Bangalore CBD rentals, on the other hand, also increased by approximately 19 per cent during January to September 2007, as compared to higher rental growth of 31 per cent in the same period last year owing to minimal stock infusion, limited availability of land parcels for construction in conjunction with sustained demand.
Says Sanjay Verma, Executive Managing Director, South Asia, Cushman & Wakefield, “Positive market sentiments and consistent demand across micro markets would continue to increase rental values in the forthcoming months; however, the rise may not be substantial. Given the narrowing down of rental growth over the last three quarters, the rental values may stabilise or soften in certain micromarkets in the medium term.”
Which is why today the micro market is fast emerging as the new CBD for most metropolitan areas and corporates are favorably considering it due to availability of larger office spaces, better quality properties and proximity to employee residences, says the report. For instance, the decline in growth of rental values in South Delhi’s prime micro markets from 12 per cent in Q1 to 3 per cent in Q3 is attributable to the new supply that has entered the market this year in locations of Jasola, Vasant Vihar and Saket. Gurgaon’s office rental growth has also witnessed significant decline from 30 per cent in Q1 to 1 per cent in Q3 in 2007, due to the significant supply expected to enter the market. The delay of several projects, which were scheduled to enter the market in the beginning of this year, resulted in scaling of the rentals in Q1 2007. As over 4 million square feet supply has entered the market up till Q3 and another 1.6 million square feet planned in the last quarter, the growth in rental values have narrowed down.