A recent RICS and Cushman & Wakefield report entitled “Commercial Real Estate: Steering growth in Indian cities”, forecasted that rentals [1] in suburban locations/secondary business districts in key markets are likely to outpace that of the existing CBDs. Robust demand in alternate locations and newer buildings commanding higher rentals would steer the average weighted rentals in the suburban/SBD (Secondary Business Districts) markets of Bengaluru, Hyderabad and Mumbai.


In Bengaluru, it is expected that by the end of 2016, the rentals in the Outer Ring Road (ORR) market would likely be at par with rentals of CBD at INR 75/month/sf. In the ORR sub-market, supply infusion of 5 msf in 2016 commanding high rentals, coupled with significant demand expected, would steer rental growth. As a result, the weighted average rentals in ORR sub-market is likely to witness a CAGR of 9% between 2011 and 2017, as opposed to a CAGR of negative 1% between 2011 and 2017 in the CBD sub-market. Demand in the ORR market continues to remain robust with absorption of 12.1 msf expected in 2016 and 2017. Companies, especially in the IT-ITeS space have continued to prefer the ORR sub-market wherein they can get contiguous office space as a result of larger buildings with large floor plates. For perspective, in 2011, the weighted average rentals in CBD was approximately 1.7 times that of the ORR market. In 2015, the trough narrowed with CBD rentals being 1.04 times higher than the rentals in ORR. 


By the end of 2016, the Madhapur sub-market is likely to witness its average weighted rentals outpacing that of the CBD sub-market [2]. This can primarily be attributed to approximately 9 msf of supply that is expected to come in over 2016 and 2017 in Madhapur, commanding higher rentals. Approximately 5 msf of absorption is expected in 2016 and 2017 driven by demand for space by IT-ITeS companies. The increased activity would likely result in rental CAGR of 4% between 2011 and 2017 in the Madhapur sub-market. The CBD, on the other hand, is likely to witness absorption of merely 0.5 msf. Limited supply in CBD has kept net absorption subdued, leading to a likely CAGR rental growth of 2% between 2011 and 2017 in CBD. With Hyderabad’s CBD having no Grade A stock, the Madhapur sub-market has emerged over the years as a preferred market for companies in the IT-ITeS space. As of Q1 2016, the Madhapur market accounted for 66% of total Grade A developments in the city. Additionally, the Madhapur sub-market has presence of large IT parks with some having floor plates as large as 100,000 sf, as compared to most projects in CBD that have floor plates of under 25,000 sf and lower efficiencies.

The rentals are expected to jump in 2017 in Hyderabad CBD owing to no supply infusion during the year, along with continued absorption that is expected to be equivalent of that in 2016. 


While the weighted average rentals in Mumbai’s SBD (Bandra-Kurla Complex) market have been higher than that of the CBD historically, the rental differential between the two markets in the preceding 3 years is likely to widen the most in 2017. Sustained demand for office space in BKC, coupled with companies relocating from CBD would likely lead to a deeper trough between the weighted average rentals in both the markets. BKC is expected to see quality supply of 2.8 msf in 2016, which would see staggered absorption over the 2 years. The SBD (comprising BKC, Santacruz & Kalina) comprises nearly 7.3 million square feet (msf) of Grade A office space, accounting for about 10% of total Grade A space in the city. The CBD in South Mumbai, on the other hand, accounts for nearly 3% of total Grade A developments in the city. BKC has been able to attract several prominent companies boasting a strong developer profile comprising of BFSI occupants, followed by IT-ITeS, Pharmaceuticals and Consulting companies.

Several renowned companies such as UBS, Pfizer, Deutsche Bank, BNP Paribas, IDFC, Standard Chartered, etc. presently occupy large office spaces at BKC. Over the last 5 years (2011-2015), nearly one-fifth of total leasing activity has been accounted for by companies in the BFSI, comprising nationalized banks, foreign banks, private-equity funds, insurance companies, and financial advisory firms. Various MNCs in the technology space such as Google, Facebook, LinkedIn are also located in BKC.


Although the Delhi-NCR market has historically seen the CBD rentals outstripping that of Gurgaon CBD, the CAGR of rentals in Gurgaon is double that of CBD between 2011 and 2017. During the period, the Delhi CBD sub-market’s rentals are likely to witness CAGR of 5%, as compared to CAGR growth of 10% in Gurgaon CBD. Delhi CBD rentals have been rising due to quality projects becoming operational over the last few years, commanding high rentals. With supply of 0.08 msf expected in the CBD in 2016, and no supply expected in 2017, the market is likely to witness an uptick in rentals by 2017 due to unavailability of quality space. Over the next two years, absorption of 0.07 msf is expected in the sub-market. The Gurgaon CBD market would likely see rentals strengthening on the back of higher absorption, coupled with approximately 1.0 msf of supply over the two years. Availability of contiguous space in office buildings replete with modern amenities, better connectivity and competitive rentals have led to various MNCs preferring the Gurgaon CBD sub-market. Over the next two years, the sub-market is likely to witness absorption of 0.4 msf, leading to a modest rise in rentals, although higher than Delhi CBD on a CAGR basis over 2011-2017.


The CAGR rental growth in SBD East is likely to be seen at 14% between 2011 and 2017, pacing itself against the rental CAGR growth of 4% in CBD location during the same period. The spurt in rental growth is on the back of increased activity in the market (Kalyani Nagar, Kharadi, Mundhwa, Yerwada, Nagar Road, Viman Nagar, Hadapsar, Kondhwa) by developers and occupiers. The year 2016 and 2017 together are likely to witness 2.2 msf of supply and 3.4 msf of absorption in the market. Increased preference for the market, along with low vacancy levels (expected to be 6.3% in 2016) are likely to lead to an uptick in weighted average rental values over the next 2 years. The CBD is likely to see muted absorption in 2016 and 2017, as compared to SBD East. The expected absorption of 0.7 msf during the two years due to lack of contiguous space required by occupiers and forecasted supply of 1.2 msf owing to unavailability of developable land parcels, would likely lead to slow activity in the sub-market. As a result, the rental growth in the CBD is likely to be tepid.


The CAGR in rentals in Suburban South is likely to be at 5% between 2011 and 2017, while that of CBD is expected to hover around 3%. In absolute terms, the absorption in Suburban South sub-market is expected to be approximately 2.3 msf in 2016 and 2017 together, as against absorption of 0.5 msf in the CBD sub-market. The supply activity too in Suburban South sub-market is also likely to be more than 4 times higher than that seen in CBD. This relates to an expected supply level of 1.3 msf over the two years in the Suburban South market, compared to 0.3 msf of supply in the CBD over the 2 years. 

[1] Weighted average rentals based on vacancy

[2] All grade Rentals in CBD due to absence of Grade A buildings in Hyderabad CBD

Read full report on Cushman & Wakefield RICS report


Sitara Achreja, Executive Director, Marketing & Communications

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