Bengaluru tops in office rental yields: Report

After a period of slowdown, a lot of interest from the investor fraternity is witnessed in the office rental yields with Bengaluru, Mumbai and Delhi topping the list of 20 global cities, a recent survey said.

According to a report by property consultant Knight Frank on forecast of top 20 global cities with highest rental yields till 2015-end, Bengaluru topped the list offering a return of 10.5%, followed by Mumbai at 10% and Delhi at 9%.

"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," Knight Frank Chief Economist and National Director of Research Samantak Das said.

Office markets across the top cities of India are continuing with its turnaround trend observed in 2014, which is backed by robust economic growth and focus on infrastructure and ease of doing business, he said.

According to the study, rentals across Mumbai and Delhi are, however, 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 year-on-year," Das added.

Commenting on the findings, its Chairman and MD Shishir Baijal said, "Indian office market has been maintaining the healthy traction of 2014 and has clocked office space transactions of 18 million sqft in the first six months of 2015 and we expect the year to complete at around 40 million sqft which is the highest since 2011."

According to the report, this is a record year for Bengaluru which is expected to transact office space to the tune of around 12 million sqft 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," Baijal added.