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Office rentals appreciate

Ramesh Nair

While hopes are rising about an upturn in property market with the advent of RERA and other reformatory steps, there’s already good news about office market rentals in two recent reports released by JLL India. While a report by its North & East MD Manish Aggarwal says gross average rentals of Delhi-NCR office market have shown marginal appreciation in 1Q17, Ramesh Nair – CEO and Country Head, discloses in his report that during the same period, Pune and Chennai managed to recover from the fall in office rents. Team R&M brings a consolidated picture before its readers based on these two reports.

At Rs78 per square feet per month, country’s third largest office market of Delhi-NCR recorded almost a 1 per cent appreciation in average rents. This average has been arrived at by considering office assets spread across Delhi’s CBD and SBD as well as Gurugram and Noida. As it is on a stock-weighted basis, the higher office stock of Gurugram influences the average number, says the report.

While Delhi-SBD (secondary business district) witnessed a decline of 6per cent in average rentals, Noida saw an appreciation of 4 per cent. Similarly, Delhi-CBD (central business district) rents declined by 1.4 per cent (y-o-y) whereas Gurugram witnessed a 1.3 per cent gain over the same period. The average rents of Delhi’s CBD and SBD went down to Rs246 and Rs138, respectively. On the other hand, average rentals of Gurgaon and Noida went up to Rs76 and Rs44, respectively.

The report says that the relatively affordable rents in both Noida and Gurugrammicro-markets make them attractive to IT/ ITeS occupiers, among others. With this key differentiating factor, Noida is expected to remain an attractive destination for occupiers seeking consolidation or large campus-style developments and alternative office facilities in SEZ developments.

In Gurugram, rents in older, strata-titled properties are expected to correct and may affect the overall growth rate. However, the established DLF Cyber City precinct as well as upcoming and existing quality IT and other commercial projects are expected to command a premium over prevailing average rents, thus driving rental growth in this micro-market.


The JLL expert’s report goes on to say that in 1Q17, leasing activity remained largely slow in the Delhi-CBD due to lack of vacancy in quality assets, and only select occupiers taking up space. With occupier exits overshadowing the sluggish transaction activity, this micro-market recorded its worst performance in 13 quarters. On the other hand, Delhi-SBD saw its net absorption improve to a three-quarter high on the back of moderate-sized transactions in a few quality projects.

Many strata-titled projects are struggling from a lack of occupier demand in the Delhi-SBD. Delhi city has often seen developers employ the strata sale model. In the suburban locations, however, the lease model has been more prevalent, which makes them more attractive to large occupiers. Rents in certain precincts of Gurugram, especially DLF Cyber City, had touched triple digits last year on the back of healthy demand.

In its outlook, the report says that both the CBD and SBD of Delhi city will continue to cede ground to the suburbs, which have become more homogeneous office markets and are finding greater acceptance with even traditional, non-IT occupiers thanks to availability of more cost-effective office facilities. Most of the anticipated leasing activity in these two micro-markets is likely to occur in quality buildings and result in cyclical periods of good absorption levels.

The office footprint across NCR has risen steadily over the years. From 47 mnsft in 2010 to 96 mnsft in 1Q17, developers in Delhi-NCR have been aggressively building new office stock. The quality of assets has been improving too – with larger floor plate options for corporates and smaller floor plate options for IT and other occupier categories.

Gurugram leads the way in its Grade-A office stock, followed by Noida and Delhi-SBD. Delhi-CBD, on the other hand, has limited Grade-A stock and an almost nil supply. This has fuelled occupiers’ move towards the suburbs of Gurugram and Noida, both of which have emerged as preferred office corridors. The lack of adequate land in Delhi for fresh office developments is another factor helping the suburbs, concludes the report.


Going beyond Delhi-NCR, JLL India CEO Ramesh Nair writes that while Bengaluru was the first office market across India to surpass its previous highest average rentals in 3Q2014, it is now joined by the IT hub of Pune and the manufacturing hub of Chennai. Another leading IT city, Hyderabad, is well on its way to cross its previous peak.

The rental indices for Pune and Chennai now stand at 100.7 and 100, respectively. The base for indexing rental levels is 3Q2008. The growth in rents of these markets shows their inherent strength and attractiveness for occupiers. Among these four markets, office rents increased marginally in 1Q 2017 in select sub-markets of Pune and Hyderabad while Bengaluru rents remained stable.

Select sub-markets of Chennai also witnessed increase in rents even as its stock-weighted average remained stable. Rental growth, however, is expected to strengthen in Bengaluru, Hyderabad and Pune through 2019. Lower vacancy rates and sustained demand in the established office corridors of these cities will help in better rental appreciation during the forecast period of 2017-19.

For example, Bengaluru’s secondary business district (SBD) as also Hyderabad’s HITEC City and Gachibowli sub-markets are likely to see major rental appreciation during through 2019. The underlying reasons being low base rents, quality assets and better infrastructure – apart from continued healthy demand.