The YoY rental growth continued to surge in several micromarkets across India, particularly in cities like Bengaluru, Pune and Gurgaon. With YTD absorption of 10 million sq ft, Bengaluru continued to outperform with sustained interest from occupiers. Thus, the upward pressure on rents continued in several Bengaluru micromarkets on the back of shrinking vacancy levels. Although rental values in Pune stabilised in Q2 and Q3 2017, they are still relatively higher than the same period last year due to constant supply crunch in Pune market.

In the last few quarters, due to availability of quality Grade A supply and necessary infrastructure, several Gurgaon micromarkets have also merged as a bright spot in the NCR market, thus leading to y-o-y rental growth.

“Gurgaon office real estate market remains preferred destination for occupiers. Office demand will continue to move northwards in short-to-medium term. Rental values are likely to remain stable across most micro-markets in Gurgaon with expectation of a slight increase in CBD of Gurgaon”, says Sanjay Chatrath, Executive Director, NCR, Colliers International India.

According to Colliers Research, the top 10 office micromarkets that witnessed the highest rental growth in Q3 2017 are as follows:

Bengaluru – CBD
Due to its strategic location, proximity to prime residential areas and limited supply, CBD areas like MG Road, Vittal Mallaya Road continue to reign as preferred micromarkets among occupiers, thus recording a y-o-y rental growth of 16.7%, the maximum among all city micromarkets. As we are not expecting any significant supply in these areas, we may continue to witness upward pressure on rental values over the next few quarters.

Gurgaon – Golf Course Road
About 30% of the total leasing volume was concentrated on the Golf Course Road in Q3 2017. It remains a preferred choice for premium occupiers, especially due to its enhanced metro connectivity, thus leading to 14.8% y-o-y rental growth.

Pune – Baner
Although Baner is one of the suburban commercial markets in Pune, growing demand from occupiers and minimal supply has led to rental growth of 10.9% y-o-y basis.

Chennai – OMR Pre-Toll
The IT-ITeS destination of Chennai, the OMR Pre-Toll micromarket, comprising Taramani, MGR Salai, Kandanchavadi, Perungudi locations witnessed rental growth of 11% y-o-y. Despite continuous upward pressure on rents and low vacancy, the micromarket maintains its preference among occupiers with 51% share of total absorption in Q3 2017.

Pune – Hadapsar/Fursungi
The Hadapsar/Fursungi market witnessed 10.2% y-o-y rental growth. Proximity to prime, affordable residential areas and presence of state-of-the-art township, Magarpatta City has elevated the prominence of this micromarket in the past few years. It remains a popular destination for IT-ITeS occupiers.

Pune – Kharadi
Over the past few years, Kharadi has emerged as a prominent IT hub due to growing interest from several notable technology companies and presence of prominent establishments like EON IT Park and World Trade Center. Rents increased 10.1% y-o-y basis due to severe supply crunch and keen interest from occupiers. However, rentals are set to stabilise due to strong supply pipeline that is expected over the next 3-4 years.

Gurgaon – DLF Cyber City
As an established IT hub in Gurgaon, Cyber City has continued to draw tenants due to its locational advantages along with presence of premium buildings and good infrastructure. Continued occupier preference and low vacancy rates in this micromarket pushed the average rents by 9.5% on y-o-y basis.

Hyderabad – SBD

The office market performance in Hyderabad continues to be intense in the Secondary Business District (SBD) and about 80% of the total leasing volume in Q3 2017 is concentrated in this micromarket. Being the preferred micromarket in Hyderabad, SBD witnessed about 8% y-o-y increase in rentals. We expect office demand to remain concentrated in this micromarket with robust expansion plans of prominent technology players.

Bengaluru – Hosur Road

Hosur Road, a 10km long micromarket in Bengaluru is connected to many prime residential areas and is a concentration of retail and F&B outlets. Tenant profile is also a mix of manufacturing, industrial, IT-ITeS and research companies. With no new upcoming supply and persistent demand by the old tenants, there has been a 7.7% y-o-y increase.

Bengaluru – Outer Ring Road (ORR)

In Q3 2017, ORR remained the preferred location with major contribution of 74% in the total absorption. Although the future supply pipeline in this micromarket is likely to complement demand, it is the most sought after location in Bengaluru. Owing to the same, rental values inched up by 7.1% on a y-o-y basis.

“All the south cities and Pune market are witnessing single digit vacancy rates. While the construction of grade A commercial properties may ease some of the pressures, we do not expect inventory pressure to reverse any time soon. Despite a strong supply pipeline in most of these cities, we expect, the rental values to increase in the short term, especially, in grade A developments”, says Surabhi Arora, Senior Associate Director, Research.