India’s Real Estate Concerns

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.