In the annual survey by global real estate consultant Cushman & Wakefield, New Delhi’s Connaught Place has emerged as world’s 4th most expensive office location gaining one position over last year. The report ranks locations across 63 countries to compare the most expensive office destination across the world. London’s West End emerged as the world’s most expensive office market regaining its position from Hong Kong’s Central Business District (CBD) in a gap of 5 years, while Rio de Janerio in Brazil captured the third position ahead of India, according to C&W report, Office Space Across the World 2013. Tokyo, Japan (5th Position) and Beijing, China (7th position) lost two and one positions respectively over previous year survey. Retaining their positions from last year Sydney on ninth and Paris on tenth, complete the top ten.
Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield said, “India’s corporate office space has been limited with majority of the development being in the IT/ITeS space. Therefore locations that do offer corporate office space such as CBD, off CBD, and select micro markets in the suburban districts have witnessed high rental values. Demand for corporate office locations have remained buoyant especially from sectors like BFSI, engineering and Consulting firms, media and entertainment amongst others leading to increase in rental values for these locations.”
Sanjay Dutt, further added, “The global markets and indeed the Indian office markets have been affected negatively by the economic slowdown in European and American continent. There was a 23% decline in absorption in 2012 in India. Most corporate are cautious and have concentrated on increasing efficiency of their existing office spaces, alternate workplace strategy with remote or flexible work stations or hours. Relocation and consolidation at attractive terms is helping current space take up.”
New Delhi, Connaught Place, which emerged as the 4th most expensive office space in the world, registered a growth of approximately 25% in rental values over the last year, to charge INR 403 / sf/ month. Given that it is one of the oldest established office centres in India and is in proximity to other establishments like government organisations, trading centres and retail location, demand for quality office space has been high. Also gaining from the fact that there is limited supply of quality office space in the vicinity adds to its attractiveness. The location also remains high on priority for sectors such as BFSI, consulting, trade, media etc. Fresh supply in Connaught Place is essentially due to redevelopments and renovations of existing buildings which have been commanding premium and thus are instrumental in pushing the average rental values in this location northwards.
Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, “The new master plan for New Delhi by the Delhi Development Authority has not provisioned for any rapid growth of office space within the city leaving very limited choice. Majority of the demand for office space is still being serviced by Connaught Place as the location has other support socio – political infrastructure. Limited quality corporate office space in Connaught Place has fuelled the northward march of the rental values.”
Sanjay Dutt further added, “The rental values of this location will remain high, however, limited activities in the location on an ongoing basis is expected to keep values contained, notwithstanding the fact that location may have already reached peek pricing.”
Within APAC, Indian cities captured top positions in the Largest Rental Growth charts, with New Delhi ranking 2nd recording an rental escalation of 25% over last year. Chennai CBD (13%) saw the 3rd highest rental growth in Asia followed by Bengaluru CBD (8%), at 5th position, Pune CBD (7%) at 7th and Kolkata CBD at 8th (6%) showing positive annual rental growth over previous years. Most of the CBD locations in top cities have continued to witness interest with little supply in the office space while demand has remained high for prime spaces in these locations. This, coupled with already existing high rentals have further propelled the rental values.
Chennai office market has been a stable growth market and has usually beaten trends of extreme growth of fall. However, the interest from global and location companies has seen a tremendous growth in the last few years, has been fuelling the requirements of office space in the CBD locations. While in Bangalore and Pune, where majority of the development is IT/ ITeS, pure commercial office is limited and concentrated around the CBD. Thus for sectors other than IT/ITeS, options are reduced to CBD creating demand to supply mismatch with demand being far greater than supply, thereby pushing rental values northwards.
Within the Top 10 location in Asia Pacific region, New Delhi’s Connaught Place ranked 2nd and Mumbai’s, Bandra Kurla Complex (BKC) was ranked the eighth. Bandra – Kurla Complex, had been planned to provide an alternate office destination to Nariman Point nearly three decades ago. Its unique central location and accessibility from all major residential pockets of Mumbai coupled with modern high quality office space and the recent relocation of some major government organisations and trading conglomerated has ensured that there is consistent demand in the location.
Sanjay Dutt says, “BKC has been commanding high rental values but due to consistent supply of office space and an average vacancy of 10 % – 15% and with an additional supply of 4.5 million sq.ft. expected in the next 24 months, rental values have remained stable. The established CBD of Nariman Point also for the first time saw an increase in vacancy going upto 10% in 2012 leading to a stable rental values.”
In India, the top most expensive office space locations were largely distributed between Mumbai with five locations and NCR featuring three corporate office space locations in the in the top ten Most expensive office locations in India. Mumbai featured high on the India list of expensive destination with BKC (2nd), Nariman Point (3rd) and Worli (4th).
Globally, the office market witnessed prime rents rise by 3% in 2012, but this was largely driven by the impressive levels of growth in South America, particularly Brazil and Colombia. However, although prime rents expanded on a global basis, many markets suffered under continuing economic uncertainty and this led to increased occupier caution. This trend of companies proactively trying to reduce office occupancy costs to is expected to continue as the overall global economic outlook remains unsure.