Office rentals
in the cities of National Capital Region, Mumbai and Bengaluru will continue to
outperform thanks to strong demand from office space occupiers, according to a
recent RICS’ India Commercial Property Monitor. Bengaluru is in fact
expected to do better than the other two cities.
RICS’ India
Commercial Property Monitor is a quarterly guide to the trends in the
commercial property investment and occupier markets. The guide is based on
survey questionnaires sent out to RICS members over a month long period ending
10 July, 2017. Respondents were asked to compare conditions over the latest
three months with the previous three months and give their views on the
outlook.
Office rental
forecasts over the next twelve months have been lowered slightly to 3.3% in Q2
from 3.5% in Q1 of 2017. This is due to a moderation in rent expectations for
prime office space, though office rental forecasts are still seen up 6.3% over
the next year.
“Strong economic growth is
generating demand for office space.The last two years 2015 and 2016 have
been quite good for the segment with pan India office vacancy at its lowest
over 5 years. Vacancy levels in some cities such as Bengaluru, Chennai,
Hyderabad and Pune is around 5-10%. On the supply side, there is a shortage of
grade A office space. It is less than half of the current office stock across
top eight cities at 280 million sq ft. The gap between demand and supply of
good quality office space Is keeping office rentals strong,” said Sachin
Sandhir, Global Managing Director-Emerging Business, RICS South Asia.
Retail properties
in NCR are however expected to see significantly less rental value appreciation
over the next year than their counterparts in Bengaluru and Mumbai. The Q2 2017
results show occupier demand continuing to rise in the office sector, while,
similar to Q1, respondents reported virtually no change in demand across the
industrial and retail segments over the quarter.
investor demand was flat in Q2 though investment
enquiries for offices increased during the quarter. This trend was mirrored in
the data on enquiries from foreign buyers. The supply of property for
investment purposes was unchanged for the third consecutive quarter across all
three market segments.
Respondents are modestly bullish on capital
values over the next three months. However, this is mainly driven by the office
segment as the outlook for the industrial and retail segments are flat over the
next quarter. Respondents however do expect capital values to increase across
all market segments over the next year.
When viewed at the city level, respondents
revised capital value forecasts over the next year lower, particularly in
Bangalore. Headline capital values are now seen increasing 3.9% over the next
year after contributors forecast a 6.1% appreciation last quarter. However,
this market is still seen outperforming Mumbai and the NCR where headline
capital values are seen up 3.8% and 2.9% over the next twelve months,
respectively.
The Occupier Sentiment
Index inched higher to +7 from +6 in Q1. This slightly positive reading
indicates marginally positive momentum in the occupier market.
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