Rents for commercial office space in Grade A Indian cities continues to rise

By Vipin Agnihotri

Even as the Indian economy is seeing an upward spiral, it has come into the notice of The India Street that rents for commercial office space in Grade A Indian cities continues to rise. The IT/ITEs sector is still fuelling growth in the present quarter so upward pressure is still apparent.

In terms of statistic, Bangalore saw an overall absorption of 2.6 million sq. ft, 80-85 per cent of it by the IT/ITEs sector. On the other hand, cities like Hyderabad, Chennai, Kolkata and Mumbai are also experiencing an upward trend both in terms of absorption as well as rentals. Talking about the NCR region, there has been a dip in the overall absorption of the commercial office space, from 1.5 million sq. ft last quarter (Q1 of 2007-08) to 0.81 million sq. ft in the present quarter.

In my opinion, given this increase in overall demand and constrained by limited fresh supply over the coming two or three months, rentals are expected to continue their upward movement. However, when I talked with few real estate experts, some of them were of the opinion that there is going to be a correction in q3 and q4 of 2007-08.

It is worth mentioning in this regard that the Indian office space market is now close to its second 1995-96 crest. The pivotal factor here is that an over-supply situation has started hitting few markets and there are already signs of plateauing of rentals except in Mumbai and the Central Business Districts of the primary cities.

For example, rentals in Mumbai are expected to stabilize by the end of 2007 or in early 2008 when number of projects will be finished in areas such as Goregaon, Bandra-Kurla and Andheri. If experts are to be believed, Lal Bahadur Shastri Marg in Mumbai is expected to emerge as a preferred IT destination. Plenty of IT and commercial projects are expected to come up in this district.

Apart from Mumbai, Pune is also experiencing high growth. As a matter of fact, at least eight private IT SEZs are coming up in the city that will supply Grade A IT/ITEs lease space over next three-to-five years.

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