Bengaluru set to witness 6.6% office rental growth in 2019

In the latest report by Knight Frank- ‘Global Outlook 2019’, Bengaluru has emerged as the third fastest growing office market in terms of prime rental values for office space globally. The estimated growth in office rental values in Bengaluru by end of 2019 is expected to be 6.6% over 2018. New Delh

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Published - Feb 15, 2019 5:37 AM

In the latest report by Knight Frank- ‘Global Outlook 2019’, Bengaluru has emerged as the third fastest growing office market in terms of prime rental values for office space globally. The estimated growth in office rental values in Bengaluru by end of 2019 is expected to be 6.6% over 2018. New Delhi, which is expected to see a rise of 6.5% in prime rental values in 2019, was recorded as the fourth fastest growing office market globally. The annual report evaluates the upcoming year of 2019, to state that 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. The report evaluates 33 global cities and gives insight on office rental growth, office occupier forecast, industrial and retail outlook along with other alternate sectors such as logistics, healthcare and hotels. Bengaluru, which saw a prime rental value of INR 125 per square foot (psf)/ month in 2018, is expected to see a growth in rental value in the range of 6.6% y-o-y by the end of 2019, on account of low Grade A supply in prime markets. With demand remaining buoyant in the market from the IT/ ITeS and the start - up sectors, the lack of quality space in key markets is pushing the rentals northwards. Mirroring the same trend, New Delhi with prime rental values of INR 326 psf /month, is also expected to see a rise of approximately 6.5% on the back of constricted fresh supply in 2019. ShishirBaijal, Chairman and Managing Director, Knight Frank India, said “Commercial segment continues to show growth in 2019, much like the year past when leasing activities breached the 46 million square feet and touched a historic high. However, the supply side has not been as robust, keeping rental growth positive at the same time. The trend of rental growth in prime markets is expected to continue in 2019 for prime Bengaluru and New Delhi markets, due to continued supply crunch. Mumbai is however expected to see stable rentals in 2019 with an outlook of marginal rental growth due to anticipated supply for 2019 in the prime market. This rental growth is also the prime reason for increased interest from institutional investors in acquiring income yielding assets in the commercial segment.” Mumbai prime office rentals are expected to remain largely stable with an estimated growth of only 0.3% in 2019. The recorded rental for prime markets in the city is approximately INR 300 psf/month. This is largely due to demand which is routing itself to secondary and peripheral locations due to high rental values in prime markets. The prime office market of BandraKurla Complex (BKC) is at the verge of witnessing a growth in supply in the upcoming year. The report highlights that Melbourne and Sydney will see the largest rental growth in 2019 with rents rising 10.1% and 8.6% respectively. Both are experiencing tight supply in their office markets due to the sustained strength of employment growth and relatively low levels of development completions in recent years. Prime rents have been rising rapidly in both markets, up by 13% in Sydney and 6% in Melbourne over the past year. Across the global markets, uncertainty surrounding trade tensions and political events has led to a pause in the development pipeline, causing low vacancy rates and driving rental growth up. Over the next three years, global markets, generally short of high quality supply, will see further demand from both tech and co-working occupiers as new waves of the digital revolution maintain growth momentum for office demand in tech-orientated global cities. William Beardmore-Gray, Head of Occupier Services and Commercial Agency, Knight Frank, “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. The limited supply of new offices, following years of under development, mean that many occupiers will feel compelled to enter the market in 2019, and acquire space before someone else takes their preferred option for a future headquarters building.”

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