COMMERCIAL PROPERTIES SHINE
Bengaluru, Mumbai and Delhi outperform global cities with 9.5% to 10.5% annual returns for commercial properties, reveals a report
Mumbai, Delhi and Bengaluru have outperformed all other global business hotspots with 9.5% to 10.5% annual returns led by growing depth of lease market and demand for commercial properties, reveals the second edition of Knight Frank’s flagship global report, Global Cities 2016.
While Bengaluru topped the list with 10.5% annual yield, returns in cities like New York, Singapore, London, Tokyo and Hong Kong ranged between 2.9% to 7% at the highest.
Mumbai and Bengaluru are also featured among the list of top five global cities for future rental growth and are expected to grow to nearly 22% and 16%, respectively. The growing appetite for Indian commercial properties is indicated by around 67% of investments flowing into Indian real estate from overseas – the highest among all other countries.
The report provides a compre- hensive outlook for real estate in 21 of the leading business cities and forecasts for the next five years. This time around Bengaluru and Delhi are also a part of the analysis apart from Mumbai which was included last year.
Talking about the findings, Shishir Baijal, chairman and managing director, Knight Frank India, said the “Indian office market has been maintaining the healthy traction of 2014 and has clocked office space transactions of 18 million sq ft in the first six months of 2015 and we expect the year to complete at around 40 million sq ft, which is the highest since 2011. This is a record year for Bengaluru which is expected to transact office space to the tune of around 12 million sq ft in 2015. Even though at an aggregate level, the vacancy is at 17 % the challenge is to get good quality office spaces across prime business districts, wherein vacancy is in single digits. Due to a robust demand from start-ups and e-commerce, other than IT/ ITeS, BFSI and manufacturing, office rentals are experiencing a substantial surge. Going forward, we foresee demand to continue outstripping supply.”
Dr Samantak Das, chief economist and national director of research, Knight Frank India said, “While Bengaluru, Mumbai and Delhi are offering the highest yields globally of 9-11%, we see a lot of interest from the investor’s fraternity in the last one year which was preceded by a period of prolonged slowdown. Office markets across the top cities of India are continuing with its turnaround trend observed in 2014.”
He adds, “This is backed by robust economic growth and focus on infrastructure and ease of doing business. However, rentals across Mumbai and Delhi are still below the 2007 peak levels, though Bengaluru is an outlier wherein rentals are 8% more. Currently these cities are facing an acute shortage of good quality office space on the face of robust demand which is creating an upward pressure on office rentals that is expected to scale up in the range of 6- 7% in the next six months.” In comparison to London and New York that offer rental yields of 4%, Bengaluru, Mumbai and Delhi lead the pack with 10.5%, 10% and 9% respectively Current office rentals in Mumbai and Delhi are lower than the 2007 peak levels by 17% and 19% respectively; Bengaluru holds fort with an 8% growth
Mumbai and Bengaluru feature among the list of top five global cites in terms of future rental growth – expected to grow to the tune of nearly 22% and 16%, respectively The Delhi–Mumbai Industrial Corridor (DMIC) finds a place among the top five global infrastructure projects – expected to create new business clusters and generate unprecedented employment opportunities
The Indian REIT sector to give a further push to commercial real estate; could attract investments worth $100 billion in the next few years While London and San Francisco witnessed the highest rental growth for high-rise offices (skyscrapers), Mumbai has also shown a healthy traction in high-rise rentals 67% of investments into Indian real estate is coming in from overseas investors – highest among all other nations