Underlining the high growth in demand for office space in a fast-growing economy, occupiers lapped up 39 million sq ft of new office supply in 2007. High demand also drove office rentals to an all-time high in micromarkets across India, according to a recent CB Richard Ellis (CBRE) survey of commercial office space across key cities in India.

Significant rental escalations took place in markets like Gurgaon in the NCR and Outer Ring Road in Bangalore. Bandra-Kurla Complex in Mumbai registered the highest rental in the country, with an asking rate of around Rs 425 per sq ft per month. In fact, the year-on-year (yoy) increase in rentals in this office hub (Bandra-Kurla Complex) in Mumbai has been the sharpest, at about 80 per cent (over Q4 2006), whereas the Central Business District (Nariman Point, Cuffe Parade and Fort) witnessed a yoy rental growth of 12.5 per cent.

Rentals in Mumbai rose primarily because of high demand from both domestic and foreign companies, especially financial sector companies wanting to acquire a presence in India’s financial capital on the one hand, and constrained supply in the market on the other.

However, the present equation of demand exceeding supply is likely to change in the future. With significant new supply expected close to the end of 2008, overheated markets like Mumbai and Gurgaon (NCR) could see marginal rationalisation in rentals. Said Arvind Parakh, chief executive officer (corporate strategy, finance) of New Delhi-based real estate major Omaxe Limited: “The rationalisation of office rentals in the NCR has been long pending. With good amount of supply coming in, there will be stabilisation and consolidation of rentals in Gurgaon. Real estate costs have gone very high in recent times, making many parts of the NCR non-viable for end-users.” New supply in Jasola, Mayur Vihar and Dwarka is expected to ease demand for office space within Delhi as well.

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