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India’s Real Estate Concerns

Posted on Wednesday, Apr 4th 2007

Bangalore’s real estate situation is concerning. Mumbai was already super expensive, and never considered a location for large IT/ITES operations.

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Mumbai’s commercial real estate market has appreciated considerably over the last one year. Rents in South Mumbai (CBD) for Prime and Grade A office space are up by 73% while capital values are up by 51% vs. 12 months ago. In the suburban Bandra Kurla complex, rentals are up by 132% and capital values are up by 115% over a year. Mumbai’s CBD – Nariman Point and the secondary business district at Bandra Kurla Complex (BKC), are beginning to be considered the most expensive commercial locations in India.

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With no new office supply in the New Delhi CBD (Connaught Place) and surrounding locations, demand has clearly outstripped supply. The renewed eviction drive by the Municipal Corporation of Delhi, against unauthorized usage and development, has put further pressure on the already soaring values. The CBD vacancy rate is presently under 2%, which is further constrained by lack of Grade A office space and has resulted in an annual rental escalation of approximately 95% in the CBD and capital value appreciation of close to 140% according to real estate services firm Cushman & Wakefield.

Availability of authorized office space in the South Delhi micro markets is equally inadequate. With most of the space already leased out, the vacancy rate is close to 3%-4%. Annual rental escalation in this market has been approximately 65% with capital value appreciation close to 95%.

Suburban markets like Noida and Gurgaon have been witnessing a similar trend. Prime buildings in Gurgaon reflect a vacancy rate of less than 2% and prices have risen by approximately 80% since the last one year.

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If you are looking to set up a large IT or ITES operation in India today, you have to look outside of the Bangalore-Mumbai-Delhi centers, and at a second-tier destination like Pune, Kolkata, Chennai, or Hyderabad.

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Chennai Isnt too far behind, Here also the prices have escalated quite significantly. i think companies should really be looking more at Coimbatore and other places.

Prashanth Rai Wednesday, April 4, 2007 at 8:10 AM PT

Hi Sramana,

The high increase in rental space for offices in Mumbai, Delhi, Bangalore was inevitable considering more and more international companies wanting to have a piece of the economic boom and favorable government policies.
I have been in Pune for the past 8 years and have since seen its growth,exploitation and exuberant real estate prices.Would say the even Pune has been squeezed out,but the city does offer a lot of potential for the automotive sector, looking at recent investments by BMW and past one’s like John Deere.
The idea now ,would be to go for 3rd tier cities like ,Lucknow and Bhopal, which has in fact loads to offer.For instance Lucknow has 22 engineering colleges(in and nearby) affiliated to the standard UPTU and Bhopal nearly 18. We need to understand intricately as to why Mumbai-Bangalore and Delhi became the hub.It was because it had a lot of working population, is an education hub and has a big advantage of being the capitals.
Aah, how can I forget the weather in Bangalore.

Intel has recently invested in a full fledged R&D center in Lucknow.Have we ever thought WHY? I will put another city, Ahmedabad.The city is good with solid infrastructure, ambitious,money minded,educated amdavadis are looking to make it to another Bangalore.Though it does have a setback and thats the unpredictable Hindu-Muslim feud.

Pawan Sahay Wednesday, April 4, 2007 at 8:18 AM PT

I would take back my last comment where I said Intel has already invested in Lucknow.It should be “Intel is looking at Lucknow as a favorable destination for its next venture”

Pawan Sahay Thursday, April 5, 2007 at 5:45 AM PT

[…] a series of previous pieces such as Team of Twenty One, India’s Scale Concerns: Real Estate, India’s Real Estate Concerns, and India’s Real Estate Concerns Point to Second Tier […]

Sramana Mitra on Strategy » Blog Archive » Beyond Bangalore Friday, April 6, 2007 at 2:37 AM PT