Office rental rates: Bengaluru, Mumbai and Delhi could see an increase in office rental rates, experts say

Bengaluru, Mumbai and Delhi are expected to see an increase in office rental rates, although business players in major cities will lose space due to work from home still in place at many companies, according to industry experts.

Bengaluru, Mumbai and Delhi will record a leap in rentals of 2.8%, 1.5% and 6%, respectively, according to a report from Nirmal Bang Equities.

With 20-25% of the workforce opting for the work-from-home option, that results in a 10-15% loss of office space, he said. The recoverability of this is expected over 3-4 years.

The report was prepared on the basis of a call organized by Crisil with participants from major developers such as Brigade, Tata Realty & Infrastructure, Mindspace Business Parks REIT, DLF, Nexus Malls and Embassy.

Southern cities continue to drive demand in the office market, largely from the IT sector and ITeS and startups, while in northern and western markets, BFSI, consulting and related businesses are the main source of demand, said Piyush Gupta, managing director, Capital Markets and Investment Services, at real estate consultancy Colliers India. “There has been significant rental activity in all markets during the last quarter. ”

The net absorption of office space increased from 42 million square feet in fiscal year 20 to 20 million square feet in fiscal year 21, even as vacancy levels fell from 11, 5% to 14%, according to the Nirmal Bang report.

The commercial real estate segment experienced a structural change during Covid-19, as many companies adopted the “work from home” culture and found it profitable, according to the report. “Mumbai, Bengaluru, Chennai and Pune will experience a smaller increase in supply as the percentage of inventories and vacancy levels will remain down,” he added.

Analysts said the commercial real estate segment is expected to recover at a faster pace in the short to medium term, driven by increased headcount in IT / ITeS and other sectors, the recovery of ” office work ‘and hybrid work models given the rapid vaccination campaign and easing restrictions.

The overall expectation is that with the continued normalization of the economic environment, offices should begin to open after Diwali.

However, the impact of working from home should be somewhat obvious, with 20-25% of the workforce likely to be working from home on a permanent basis.

Attendance at large office complexes has increased and is expected to improve further with increased travel, vaccinations and the rebound in business activity, Gupta said. “Large global funds and private investors continue to demonstrate great confidence in the Indian office market by investing in both core and development assets. Occupancy rates now appear to be stabilized and could rise slightly over the next few quarters. ”