Optimistic near-term outlook despite GST-induced spike in taxes on CRE rentals
Prime central business districts (CBDs) in at least two out of three Indian metros recorded steady rental growth. Delhi’s Connaught Place area recorded a 2.1 percent rise in prime office rentals between second and third quarters – the second highest only after Bangkok which topped the index with rental appreciation of 4.4 percent in the same period. Also, despite new supply of 200,000 sq. m. hitting Bengaluru’s CBD, the tech hub witnessed rental rise of 1.4 percent, says a report by Knight Frank titled AsiaPacific Prime Office Rental Index Q3 2017.
The index that tracked 20 key international markets in Asia, recorded 0.6 percent increase in the September-ending quarter over second quarter of 2017.
In India, the successful rollout of GST in July has raised government tax on commercial rents to 18 percent up from 15 percent previously. Despite nearly 200,000 sqm of new supply in the quarter, Bengaluru’s prime rents continued their rising trend. In Mumbai, rents remained steady with declining vacancy rates and low new supply in the quarter. With sustained demand, no negative rental price changes have been reported in New Delhi since the first quarter of 2014, the report noted.
Steady demand continued to pull down vacancy levels at Mumbai’s Bandra Kurla Complex. Bengaluru’s CBD recorded rental growth despite steady new supply, the report said.
Also, while rental values in Mumbai’s Bandra Kurla Complex remained steady vacancy levels dropped lower and limited new supply entered the market. The 12-month forecast, however, shows an increase in office space rents for all the three CBDs.
The favourable outlook assumes importance in the wake of implementation of the Goods and Services Tax (GST) that raised government tax on commercial rents to 18 percent from 15 percent earlier.
Dr. Samantak Das, Chief Economist and National Director- Research, Knight Frank India, said, “The prime office rentals are showing an upward trend. These markets are generally driven by non-IT sectors. The quality supply is limited and we do see the upward pressure on rentals in the coming 12-month period.”Among other noteworthy trends, prime rents in Singapore increased for the first time since late 2014, even as vacancy rates continued to rise above 15 percent courtesy huge supplies over the past 6 months. Overall all the report expects rents in 16 cities out of the 20 markets either remain steady or increase, up from 15 in the previous forecast.