Tuesday, 4 August 2015

Corporates want developers to commit rental deals

With the demand for key office spaces showing signs of revival, corporate occupiers are seeking pre-commitments in rental deals at current market prices.

Although in the current situation the rentals are expected to remain steady, both developers and corporate expect it to rise, leading to pre-commitment deals. In a pre-commitment deal, companies get rentals at current rates for the next two years.

“The office space is on an upswing. Corporates are asking for pre-commitments. This is happening as the market is good and companies are expecting rise in rental,” Tapas Kumar Das, Head of Property and Administrative Service, L’Oreal India, said.

A Collier report on office space points that office market is buoyant with approximately 10.5 million sq ft of office space absorption in eight major cities. Maximum absorption this is around a 24 per cent increase from last quarter figures of 8.5 million sq ft. This quarter, Mumbai marched ahead of Bengaluru and Delhi NCR with regards to maximum absorption.

Mumbai shared 28 per cent of the total absorption followed by Delhi NCR (24), Bengaluru (22), Pune (17), Chennai (7) and Kolkata (2). Colliers View Office market recorded approximately 19 million sq ft of office absorption in the first half of the year across major cities. “We expect the momentum in the office market to continue with cities such as Bengaluru, Mumbai, Pune and Gurgaon to witness maximum office uptake in coming quarters,” Collier said.

P Sahel, Vice-Chairman, Lotus Green, a developer of office space in Delhi-NCR region, also pointed out that there is an increase in rentals, driven largely by quality office spaces. “Office space happens in pockets. Earlier it was in NCR. The current buzz is around Bengaluru, which is largely driven by e-commerce. We are seeing a rise in rental as well,” he said.

Property consultant Jones Lang Lasalle notes Mumbai and Delhi are expected to see slightly slow growth in rentals, in the range of 2-3 per cent during 2015, while cities such as Bengaluru, Chennai and Pune will see relatively better growth in the 4-7 per cent range. Higher growth in rentals in Bengaluru, Pune and Chennai is due to lower base and expected stronger demand.

E-commerce drive Shishir Baijal, CMD, Knight Frank India, said: “We have observed office space transactions to the tune of 18 million sq ft during January – June across the top six cities. The average vacancy level across these markets stands at 17 per cent - the lowest since the global financial crisis. Leading e-commerce players are now emerging as strong drivers and have inked office space deals upwards of a million sq ft each in recent months.

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