Bengaluru office mkt to see rent spike; Mumbai, Delhi stable: Knight Frank

Bengaluru has low vacancies that will enable absorption of upcoming supply. Its rentals are lower than global markets and its large talent pool should help quicker market revival

The Bengaluru office market, which absorbs the highest commercial real estate stock, is expected to see a rise in rental values next year while Mumbai and NCR are likely to remain stable, says a new report.

"For the main office markets of India, the positive trends are a draw out of the encouragement received in the subsequent part of 2020 (July–Sept) which saw office space demand make a comeback, albeit still short of pre-Covid periods. Bengaluru in particular has the benefit of existing low vacancies that will enable absorption of much of the upcoming supply. The city also has the advantage of relatively lower rentals than global markets and large talent pool that should help in quicker revival of this market as global economies move towards normalcy." said a report by Knight Frank.

According to the report, Asia- Pacific prime office rents are expected to decline by up to 3 per cent in 2021.

In terms of the APAC Capital market forecast, commercial yields in Mumbai, NCR, and Bengaluru, under office and warehousing segment are expected to remain stable in 2021. In the APAC region industrial investment share of commercial transaction volumes increased by 50 per cent in 2020 and is expected to continue do well in 2021 as investors continue to jump on the e-commerce growth.

The demand for warehousing remained resilient this year, correcting only by 11 per cent YoY, compared to the 44 per cent CAGR recorded from FY17 to FY20. Despite the ongoing pandemic, the Indian warehousing sector is expected to remain comparatively less impacted due to rising e-commerce demand which is expected to grow from $70 billion in FY19 to an estimated $160 billion by 2022, it said.

With such a strong demand driver, India will be a region that data centre investors, occupiers, and solution providers will find hard to ignore, which will in turn further boost demand for the prime industrial sector. With an increase in demand from e-commerce, India’s online retail growth is estimated at 13% Y-o-Y in 2020. In October 2020, the asking industrial rents for Mumbai, Delhi, and Bangalore warehousing remained stable and are expected to remain unchanged for the year 2021. 

Looking forward, in 2021, all the 17 markets tracked by Knight Frank, are expected to see either stable or improving rents in the coming year. The expected stability is further anticipated to drive asset price appreciation in 2021. In the Indian cities, including Mumbai, NCR, and Bangalore, industrial rents are expected to remain stable in 2021.The supply of quality warehouse space remains a hurdle for most markets within the Asia-Pacific region.