Delhi's Connaught Place has climbed up from the 25th spot to the 17th in a year, outgrowing San Francisco with an annual average occupancy cost of $109 per square feet, according to a report from JLL.
The global office occupancy costs aren’t very different this time from the last year’s. Hong Kong (Central) and New York (Midtown) jointly shared the top slot on the JLL Premium Office Rent Tracker (PORT) research report. At $261 per sq ft per year occupancy costs, these cities continue to lead the rankings propelled by the banking and finance sectors.
BFSI and Global Capability Centres are driving premium building rents in India. Premium realty markets of Connaught Place and Mumbai BKC are driven largely by banking and financial services firms is in line with the global trend, it said.
BFSI companies are among the top occupiers of premium office space globally with a 42 percent share in all markets. Technology firms, on the other hand, are progressively driving growth with a 17 percent share in high-end markets worldwide. In Bengaluru, Global Capability Centres and technology companies are key occupier segments in its premium markets.
PORT compares occupancy costs for premium office buildings across the world’s leading real estate markets. This seventh edition of the study includes 127 office markets and submarkets across 112 cities.
Occupancy costs refer to the cost of the net leasable area or actual rentable area, and include all costs for an occupier, including the rent (effective rent payable after considering rent-free period, tenant improvement allowances), service charges (maintenance, etc) and government taxes payable on the rent.
Mumbai’s BKC, with an annual occupancy cost of $102 per sq ft, is the second most expensive Indian city office market. It has slipped one position down to 23rd on the global list from last year. The Mumbai central business district (CBD) stands at the 63rd position with an annual occupancy cost of $58 per sq ft.
Occupancy costs remained stable at $51 per sq ft per year for Bengaluru, while it slid down to the 77th place from the 74th internationally. Occupancy costs in Gurgaon and Delhi NCR dipped from $48 per sq ft per year to $44 per sq ft per year, moving it to the 91st spot from 83rd a year ago.
Bengaluru has proven to be relatively resilient to rental decline because of its high growth, low-cost dynamics, compared to global markets. It remains the most preferred IT/ITeS destination in India and will continue to maintain its pole position among the key office markets. “Bengaluru offers occupiers a strong talent pool with quality supply within the right rental budget and other support services for the IT/ITeS sector to thrive,” PORT said.
Prime office rentals across the world have fallen since 2020 by 0.8 percent in local currency terms. “The growing significance of limited availability and moderate construction pipelines are driving the prime market occupancy costs to new heights. Delhi and Mumbai continue to dominate the overall premium office occupancy costs in India,” said Rahul Arora, Managing Director and Head, Office Leasing Advisory, JLL India.
“Bengaluru and Gurgaon have the advantage of relatively lower rentals compared to global markets with access to a large talent pool which also fuels the entrepreneurship start-up eco-system. This makes both the cities attractive to international occupiers in search of premium-quality office space with relatively lower occupancy costs,” he said.
If affordability is considered, Chennai, with an occupancy cost of $21 per sq ft per year, is the fourth most affordable office market globally.
“In the country, except Connaught Place in Delhi, and Bengaluru, all other major office market rental values have contracted. The softening of rents was largely on account of the economic disruption in the wake of the second wave of COVID-19 and landlords being flexible for existing and new tenants during rent discussions,” said Samantak Das, Chief Economist and Head of Research and REIS (India), JLL.