Office Rental Projections to Remain Strong Across Primary Markets like Bengaluru

Office rental projections for the next one year continue to point to solid growth across all prime markets, according to a recent RICS’ India Commercial Property Monitor. In terms of the city breakdown, Bengaluru exhibits stronger rental growth projections when compared with Mumbai and the National Capital Region (NCR).

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 6 October, 2017. Respondents were asked to compare conditions over the latest three months, with the previous three months and give their views on the outlook.

Capital value expectations for the next one year for office, retail and industrial segments are slightly lower. Still, solid growth is expected across segments over the next one year. Likewise, respondents also lowered their expectations for rental growth for a second consecutive quarter, with the largest downgrades coming in the industrial segment. 

Credit conditions have improved slightly in Q3, possibly because of a further cut in the RBI’s key policy rate in August, this year. The Investment Sentiment Index was unchanged during Q3, again posting a reading of +6. This measure is an indication of marginally positive momentum behind the investment market. Investment enquiries increased in the office sector, with the pace of growth, exceeding that of the previous quarter. Meanwhile, demand was flat in the retail portion of the market, and fell for industrial assets. The supply of property for investment purposes held steady for the third consecutive quarter. 

Tenant demand increased at a reasonably solid pace in the office sector, picked up only marginally in the retail sector, while demand for industrial space fell during Q3. Availability of leasable space was more or less unchanged for the second successive quarter, although a slight rise was reported in the retail segment. Meanwhile, landlords opted to increase the value of incentive packages in the office and retail portions of the market

As far as market valuations are concerned, around three quarters of respondents are of the opinion that the commercial real estate market is either at or below fair value currently. This proportion rose modestly when compared with Q2, when around two thirds of contributors took this view.