Bengaluru office rentals may grow 3rd fastest globally

Bengaluru’s prime office space rentals are expected to rise the third fastest in the world in 2019, according to a report from independent property consultancy Knight Frank. Rentals for Grade A office space are expected to be up 6.6% by the end of this year, compared to 2018, placing Bengaluru just behind Melbourne and Sydney where rentals are expected to rise by 10% and 8.6% respectively.
Behind Bengaluru is New Delhi, with an estimated 6.5% growth. The annual report, which evaluates 33 cities, says there will be a shift in focus for property investors as they respond to a more uncertain global economy and the rising cost of debt. Other cities in the list include Amsterdam, Berlin, Hong Kong, Moscow, Singapore and Dublin.
“Commercial segment continues to show growth in 2019, much like the year past when leasing activities breached 46 million sqft (in India) and touched a historic high. However, the supply side has not been as robust, keeping rental growth positive at the same time. This rental growth is also the prime reason for increased interest from institutional investors in acquiring income-yielding assets in the commercial segment,” Shishir Baijal, chairman and managing director at Knight Frank India, said.
The growth in Bengaluru, which saw a prime rental value of Rs 125/sqft last year, is expected to come from low vacancies and lack of Grade A office space as corporates jostle and pre-commit to spaces. Places such as the Outer Ring Road (ORR), which has offices of the biggest companies in the world, has vacancy rates of as low as 3%. Vacancy rates are expected to improve in New Delhi (from 16.5% in 2018 to 15% in 2021) and Mumbai (19.8% in 2018 to 14% in 2021), indicating an increase in employment generation, whereas Bengaluru will remain the same at 3.2%, the report added.
On the world scenario, William Beardmore-Gray, head of occupier services and commercial agency at Knight Frank, said occupiers face two contradictory pressures in 2019.
“The geo-political threats, like Brexit and the US/China trade war, make it difficult for firms to plan the future. However, business pressures to expand market share, recruit talent and enter new markets, are pushing them to address their property needs,” he said. Across global markets, uncertainty surrounding trade tensions and political events has led to a pause in development pipeline, causing low vacancy rates and driving rental growth up. “Limited supply of new offices, following years of under development, mean that many occupiers will feel compelled to enter market in 2019, and acquire space before someone else takes their preferred option for a future headquarters building,” said Gray.