NEW DELHI: One would imagine that office rents would go down with a strong bounceback in demand for space from corporates. Pure economics, one would think? Not really. Office rentals are likely to climb up in the coming months because of a shortage of quality spaces in key business districts around the country.

“In certain key locations, rentals could go up 20-25 per cent in the next 12 months,” says Sanjay Dutt, executive managing director for South Asia at property consultancy Cushman & Wakefield.

The situation has been brought on by the fact that most developers and even private equity players have chosen to focus on the residential property market over the last three years, ignoring the office market that saw a dip in demand from companies because of the global economic slowdown.

“Because the money moved away from commercial, we will see office supply getting tightened,” says Anshul Jain, chief executive, India, at property advisory firm DTZ. Jain says that if a client came in today asking for 100,000 sq ft anywhere north of Sohna Road near Gurgaon, he will probably have only three options to show the client. “You will see a space constraint on the commercial side in the relevant areas. And rents are already moving up,” he says.

According to property advisory JLL, in calendar year 2014, 30.7 million sq ft of good quality office space will be completed in the top seven cities of the country. In 2015, about 35 million sq ft will be completed. In comparison, between 2008 and 2011, over 40 million sq ft of supply came in to the market each year. A landslide victory for BJP-led National Democratic Alliance in the recently-concluded elections has triggered new-found excitement in the corporate sector. A rising stock market has further helped improve business sentiments across sectors. Sensing an improvement in the economy over the next 12 months, companies are already starting to plan for that growth which has led to a rise in demand for office spaces, say property consultants.

Some corporates have already picked up spaces in the last few months. KPMG recently leased over 700,000 sq ft of space in Bangalore.

Tata Consultancy Services recently about a million sq ft between Noida and Gurgaon. There is a buzz that many big Japanese and Korean firms are looking for space too. Accenture is looking for space. E-commerce player Flipkart is looking for 1.5 million sq ft of office space. Pharma firms Abbott and Lupin are also eyeing space, say consultants. According to an informal survey of top property consultancies, various corporates are looking to lease over 40 million sq ft of space in the top seven cities over the next 12 to 18 months.

Companies in sectors such as ITeS, captive facilities for banks, software development, pharma, aviation, insurance and other services are in the market today for leasing space for expansion. “It’s difficult to find space today on the Outer Ring Road in Bangalore, which is a preferred location for companies,” says Juggy Marwaha, managing director, south for JLL.

Another consultant who did not wish to be named says if a client was looking for 200,000 sq ft of space together in a good location in Mumbai, it would be difficult to find more than five options today between Andheri, Bandra Kurla Complex and Lower Parel. It’s the same in the two prime locations in Gurgaon —Cyber City and Golf Course Road. “It is still a tenant leaning market but the dynamics are changing fast,” he says.

One broker says he has only three good quality properties to show in Gurgaon, but there’s competition among several clients who want them. Bhumesh Gaur, co-chair at the India chapter of CoreNet Global, an association of corporate real estate professionals whose members include over 100 Indian and foreign corporates, says demand is coming back but availability of space is a challenge today. DLF, for instance, has over 17 million sq ft of office space at Cybercity in Gurgaon but very little vacancy. “We have a good demand pipeline from captives and IT/ITES companies for Cybercity as a preferred workplace destination. However, we are left with very limited space with Cybercity today at 98 per cent occupancy level,” says Amit Grover, national director, office at DLF.

Rentals are going up in many of these locations. Rents on the Outer Ring Road in Bangalore, Cyber City in Gurgaon, OMR in Chennai, for instance, are up 15 per cent in the last one year. Bandra Kurla Complex in Mumbai has seen rentals remain flat but they are expected to rise now.

Source: ET

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