Average office rent rises by up to 8% in a year across 5 major cities: Report

Office space demand fell 3 percent during the first quarter of this calendar year but rents increased by up to 8 percent across five major cities -- Bengaluru, Hyderabad, Chennai, Mumbai and Kolkata, according to US-based property consultant Vestian.

The consultant expects decline in demand for office space in the short-to-medium term. The growth in rental values would also slow due to the coronavirus pandemic.

According to the data, the weighted average rental values of the five cities moved moderately, on a year-on-year basis, in the range of 0-8 percent.

The monthly average rent rose by 8 percent in both Bengaluru and Hyderabad at Rs 75.5 and Rs 62 per sq ft, respectively.

Chennai saw a 5 percent rise in rental value at Rs 60 per sq ft a month, while Mumbai witnessed a modest rise of 2 percent at Rs 125 per sq ft.

The average rental value of office space in Kolkata remained stable at Rs 48 per sq ft per month.

"The five major cities of Bengaluru, Mumbai, Chennai, Hyderabad and Kolkata saw absorption of approximately 9.18 million sq ft office space during Q1 2020, depicting a decline of just 3 percent over the absorption observed in the corresponding period in the previous year," Vestian said in a report.

Majority of the absorption was observed during the first two months of the first quarter of 2020, before the COVID-19 outbreak, the consultant said, adding that the lockdown led to the deferment of several large-scale leasing decisions.

Office space leasing dropped by 11 percent in Bengaluru to 3.53 million sq ft, while Kolkata saw a drop of 57 percent to 0.15 million sq ft and Hyderabad a dip of 25 percent to 1.64 million sq ft.

However, demand increased in Mumbai by 31 percent to 2.39 million sq ft. Leasing of office space increased in Chennai by 23 percent to 1.47 million sq ft.

The new office space completions for the first quarter of 2020 was recorded at 7.5 million sq ft in the five cities, a drop of 22 percent as compared to the year-ago period.

"Supply was impacted by the spread of the COVID-19 pandemic as construction had to be halted owing to lockdowns in the country and the migration of labour force to their hometowns," the report said.

Shrinivas Rao, chief executive officer (Asia-Pacific), Vestian, said, "The first quarter results were not as dismal on account of the traction witnessed during the first two months of the year. The ensuing lockdown to contain the COVID-19 outbreak has resulted in large-scale repercussions across the industry, the consequences of which will be witnessed in the subsequent 3-4 quarters."