Office rentals rise in pockets of Bangalore, Ahmedabad, Kolkata

AHMEDABAD: At a time when global property markets are literally on their knees, small pockets in cities like Ahmedabad, Bangalore and Kolkata have bucked the trend and registered 3-18% rise in office space rentals in the third quarter of 2008. Apart from robust demand for corporate office space, the rise in rentals has largely been driven by lack of quality corporate space in these cities, states a report by global real estate solutions provider Cushman & Wakefield (C&W).

The trend of rising office rentals has been a deviation from the country���s office markets which have largely remained stable despite the addition of 18.41 million square feet (sq ft) of office space in Q3 of this year. Of the new space, a total of 9.21 million sq ft got absorbed during the quarter, while marginal corrections in values (ranging between 1% and 14%) were recorded in peripheral locations of cities like Chennai, and NCR.

Prominent gainers during the third quarter were micro-markets located in Bangalore, Kolkata and Ahmedabad. In Kolkata, office rentals in Dalhousie witnessed an increase of 18%, while CBD and Rash Behari Connector areas recorded an increase of 9% and 8%, respectively. ���This is largely because of a robust demand for corporate office space in these locations which has led to the increase in rental values in these locations of Kolkata,��� states the report.

Table: Locations Recording Rental Increase in Q3, 2008

Source: C&W Research

Similarly, three out of four major micro-markets in Ahmedabad recorded increase in rental values over the last quarter which include, CG Road (3%), Ashram Road (3%) and Satellite Road (6%) largely due to severe lack of quality Grade-A corporate property in Ahmedabad, while the demand for space in the city has remained buoyant from corporates across sectors.

Some of the micro-markets which registered marginal correction in office rentals during the same period include, NCR (where correction ranged from 1% in Gurgaon to 14% in Nodia IT/SEZ), Chennai (4-13%) and certain pockets of Kolkata (9-10%). Cities like Mumbai maintained its rental values as in the last quarter. However, prime commercial office locations such as CBD, Worli, Lower Parel, Andheri and Powai are likely to weaken. Rental values in Pune also remained unchanged since the last quarter, but most micro-markets in the city have shown signs of weakening or at best stagnancy.

Kaustuv Roy, director, tenant strategies and solutions, said: ���This quarter continued to show signs of the cautious approach from developers who focused on completion of existing projects within defined time limits. On the other hand, a wait-and-watch policy adopted by the corporate sector has brought the quantum of transactions low. We will continue to see this trend well into the last quarter of the year as well as into the early 2009.���

In the third quarter, NCR witnessed the highest supply of new office space of around 5.04 million sq ft, followed by Pune, Bangalore and Chennai with 3.55 million sq ft, 3.41 million sq ft and 3.36 million sq ft of supply, respectively. Mumbai witnessed an addition of 1.88 million sq ft of supply, while Hyderabad and Kolkata recorded 930,000 sq ft and 242,000 sq ft of supply, respectively in Q3 of 2008.

Absorption of office space was recorded at 9.21 million sq ft which is a 44% increase from the previous quarter���s 6.36 million sq ft. All cities showed a considerable increase in absorption over Q2 with the exception of Bangalore that showed a minor dip and Ahmedabad that showed no change.