Great Comeback for Commercial Real Estate in India!

These days, the demand for commercial spaces has been on the rise and is pushing the yields higher than any other prominent businesses in the cities across the globe. Prominent cities in India like Bengaluru, Mumbai and Delhi have topped the commercial property market in terms of annual rental yields. Reports have confirmed that, these three markets have outperformed all the other global hotspots with 9.5 -10.5% annual returns.

According to a recent global survey made by a popular property consultant firm, Bengaluru has topped the list with the annual rental yield of about 10.5%, whereas the cities like London, Singapore, New York and Hong Kong ranged between 2.5 – 7% at the highest. This is just an instance that proves Indian commercial real estate is back to form.

Bengaluru and Mumbai in Top 5 Global Cities’ List

Yes, Mumbai and Bengaluru are in the list of top 5 global cities for future rental growth and it is also expected to grow to 22% and 16% respectively. Also, 67% of the investments are flowing to Indian real estate market, which is highest among all the other countries. This clearly indicates the growing appetite of Indian commercial property market.

Healthy Traction Since 2014

With all the real estate happenings across India, it’s quite evident that the office space market has been in a healthy traction since 2014. India registered the office space transactions of about 18 million sq. ft. in the first six months of 2015, and by the end of 2015, the country completed the transaction of a whopping 40.21 million sq. ft. which is the highest since 2011. It also has to be noted that, out of 40.21 million sq. ft. area, the transactions of about 12 million sq. ft. was happened in Bengaluru.

Robust Demand for Office Spaces

It’s true that the yields have shown a robust growth, but the current office rentals in Delhi and Mumbai are still lower than the peak levels of 2007 by 19% and 17% respectively. Bengaluru is an outlier here also wherein the rentals are more by 8%. Currently Mumbai and Delhi are facing an acute shortage of quality spaces, which has created an upward pressure on office rentals.

With this being the scenario of Indian commercial real estate, the Real Estate Investment Trusts are expected to give a further push to the commercial real estate and is also estimated to have the investments worth $100 billion in the next few years. Even though the vacancy rate stands at 17%, investors and occupiers are still finding it difficult to get quality office spaces across prime districts.

Due to the robust demand for office spaces from start-ups and large organizations, rentals are experiencing a substantial surge leading demand to outstrip the supply. Looking at the demand for office space, we can say that commercial real estate market is making a strong comeback after being in dumps for about three years, having great deals in the pipeline and showing the signs of recovery.

Sahaana Jai, the author of the above article is working in a real estate firm offering services related to commercial office for rent in Bangalore. She is also a blogger and a web enthusiast who writes articles and blogs on the commercial real estate trends in Metropolitan cities.

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