Demand for Grade A office space maintains pace by recording pan-India leasing volume of 42.8 million sq ft
Despite uncertainty in the real estate sector due to various policy initiatives, demand for Grade A office space maintained its pace by recording pan-India leasing volume of 42.8 million sq ft in 2017. IT/ITeS cities, Bengaluru and Pune, witnessed maximum traction in terms of rental increase with five micro markets from Bengaluru and three micro markets from Pune making it to the top 10 office markets in 2017, says Colliers Research.
“With the advent of all the government policies, the real estate sector is formalizing itself, and we anticipate robust supply pipelines to quench the growing demand. However, the rents in micro markets with high demand and no visible ready stock are set to increase in the upcoming years,” says Ritesh Sachdev, Senior Executive Director, Occupier Services, Colliers International.
The top 10 office micromarkets that witnessed the highest rental growth in 2017 are:
Bengaluru – CBD
CBD micromarket in Bengaluru witnessed the maximum rental jump of 25 percent year-on-year which can be attributed to its centralised location, increasing demand and low availability of ready-to-occupy Grade A space. Total leasing activity in CBD in 2017 was recorded at 1.4 million sq ft, contributing to 9 percent share in total leasing volume.
Bengaluru – Bannerghatta Road
With limited availability of vacant stock and lack of upcoming supply, the rental rates in Bannerghatta Road increased by 18 percent year-on-year. This micro market enticed the interests of occupiers from IT/ITeS sector and co-working operators in 2017.
Bengaluru – Electronic City
Electronic city in Bengaluru recorded an increase of 17.6 percent year-on-year in 2017. The growing occupier interest in this micro market is due to readiness of quality Grade A spaces at competitive rents and availability of large floor plates. This micro market attracted few large deals in 2017 such as Siemens and Syngen International.
Delhi – Aerocity
As a direct outcome of preference among occupiers, Aerocity micromarket recorded a 17 percent year-on-year increase in rents. We expect Aerocity to remain as a preferred micro market among occupiers' due to its location advantages and availability of Grade A stock. DIAL (Delhi International Airport Limited) has started allocating land parcels in phase II of Aerocity for mixed-use development. However, it will take at least three to five years for new building to materialize. Hence, in our opinion, rents should rise by a further 8-10 percent in 2018 due to the lack of a visible supply pipeline over the next three years.
Pune – Kharadi
One of the fastest growing micro market Kharadi in Pune witnessed a rental growth of 14.6 percent in 2017. With significant upcoming supply under various stages of construction in this micro market, we expect the Kharadi to continue to be an active micro market in 2018 and the supply should be followed by demand due to the availability of large talent pool.
Pune – Hadapsar/Fursungi
Hadapsar market is emerging due to few notable projects such as Magarpatta city and other projects offering large floor plates. This micro market being an IT-ITeS destination with active residential catchment nearby, observed a 12.6 per cent year-on-year growth in office rents.
Bengaluru – EPIP/Whitefield
Owing to low vacancy rate and shortage in supply, EPIP/Whitefield micro market witnessed a rental increase of 11 percent year-on-year. However, we expect that the rents should stabilize over upcoming quarters considering the robust pipeline of Grade A supply.
Chennai – OMR pre-toll
OMR pre-toll micro market in Chennai witnessed a rise in rental values to about 10.8 percent year-on-year in 2017. Regardless of increasing rents, this micro market continued to garner maximum occupier interest representing 32 percent of the total transaction volume in the city. In our opinion, considering the shrinking vacancy rates coupled with rising rents in OMR pre-toll, occupiers' focus is likely to shift towards OMR post-toll over next three years due to the significant supply pipeline
Pune - Aundh
Aundh micro market in Pune saw a 9.6 percent year-on-year increase in rents in 2017. With spaces taken up my various IT/ITeS and manufacturing companies, we expect this micro market to be one of the key developing micro markets of Pune in 2018.
Bengaluru – Outer Ring RoadThe most sought-after office destination in Bengaluru, Outer Ring Road furnished maximum volume of absorption of 46 percent in 2017. Due to the ever-increasing demand and low vacancy, this micro market witnessed a rental increase of 9.4 percent.