Rental market: Waiting for an upswing

Published: May 31, 2014 1:32:22 am

By: Surabhi Arora

Demand for premium homes in the rental segment has has weakened in past few quarters across markets in India. Employers are increasingly restricting the housing budget for their employees, which is resulting in lower demand for rented premium accommodations.

Cost cutting is the priority for most multinational corporations and they try to negotiate hard on rentals for their expatriate and senior-level staff. With tenants getting more cost conscious, landlords are now more open to rent negotiations. A lot of landlords have taken a view that it is better to ‘meet the market’ rather than sit with a vacant property. In some cases landlords are not accepting reductions but are including amenities such as air conditioning, new appliances etc. in a comprehensive deal which makes it a win-win situation for both.

In Mumbai, the decreasing demand and cost optimisation from corporations have prompted landlords to lower their rent expectations in order to secure tenants. The rents for premium properties declined in the range of 1-7 per cent quarter-on-quarter during the second quarter of calendar 2014 in most of the micro-markets. The exceptions to this trend are Bandra, Khar, Juhu and Powai, where rents rose marginally in the range of 1–2 per cent. Similarly, in Delhi, the leasing market slowed considerably due to limited hiring by multinational companies, embassies and international organisations. As a result, rents for prime residential properties in Delhi witnessed a decline in the range of 6-10 per cent in almost all the micro-markets.

The Gurgaon market is witnessing a stable rental scenario in the premium segment while there is an upward pressure in mid-segment properties, the reason being relatively fewer options available for mid-segment housing. The rentals for mid-end properties witnessed an increase in the range of 1-3 per cent quarter-on-quarter. On the other hand, reduced demand amidst a large inventory of completed housing stock led to a downward pressure in rental values across the premium/luxury and high-end properties located on Golf Course Road, Sohna Road and MG Road.

In the NCR market of Noida, rents in institutional Sectors 61 – 63, witnessed downward pressure as tenants prefer new projects with amenities like swimming pools, club etc. in nearby localities. Moreover, these projects also offer competitive rates as compared to old established societies. In the coming quarter, a number of new projects are expected to give possessions in sector along Noida-Greater Noida Expressway in the coming quarters. As a lot of inventory in these projects is sold to investors, the supply of rental properties are expected to increase which may put further downward pressure on overall rentals in the coming quarters.

Contrary to the other markets, rents in Bangalore, Chennai, Kolkata and Pune increased in the range of 2-9 per cent quarter-on-quarter during Q2 2014. High demand has been observed in the mid-segment residential properties. Continued demand from the IT/ITeS sector employees kept upward pressure on rentals in almost all the micro markets. The micro-markets, which attracted significant interest from buyers in Bangalore, were Outer Ring Road, Whitefield, Jakkur and Koramangala. In Chennai, the demand for residential properties remained robust in locations like Boat Club, Adyar, Velachery, and GST Road owing to their close proximity to central locations and other micro markets. The Old Mahabalipuram Road also witnessed increased demand from IT workforce in mid as well as high end housing segment.

Micro-markets like Alipore, Ballygunge, EM Bypass, Salt Lake and Behela were remained active in Kolkata beside primary micro markets. In Pune, demand remained upbeat in the main residential hubs including central areas of Boat Club Road, Camp and Deccan, as well as in eastern suburbs, such as Magarpatta, Hadapsar, and western areas namely Baner, Hinjewadi, Pashan and Wakad.

— The author is Associate Director, Colliers International

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