What makes Bengaluru command the highest rental yields?

[] We examine how Bengaluru’s office space dynamics have made it the city with the best rental yields in the country

Mayur Shah, an NRI from Boston, wanted to invest in a residential house in India. His first choice naturally, was his hometown of Ahmedabad. However, he was advised by the local agents to instead opt for Bengaluru. Shah was initially skeptical, as property prices in Bengaluru were higher than those in Ahmedabad. However, a closer look made him realise the rationale. “From the standpoint of ROI (return on investment), Ahmedabad or many other cities of India do not make much sense, when compared with Bengaluru. The rental yields in these cities are around 1%-1.5%, depending upon the location. However, properties in Bengaluru promise almost three times higher rental yields,” says Shah.

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How Bengaluru fares, compared to other cities in India and abroad

According to data available with Track2Realty, a real estate think-tank group, Bengaluru has the highest rental yields in the country, between 3% and 4%, depending upon the location. Moreover, property prices are still much lower than many other cities like Mumbai or Delhi-NCR. Another report by Global Property Guide, suggests that the rental yields in Bengaluru are anywhere between 3.7% and 4.4%. The report adds that this seemingly high rental yields are still a long way below the levels seen in 2007, when the yields had been in the range of 7.16% to 9.92%.

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Analysts attribute the high rental yields in Bengaluru to its robust economic activity.

[] What makes Bengaluru an ideal investment destination?

Data available with Track2Realty, shows that consumption of office space per household in Bengaluru, is better than most cities in India and the level can be compared to international cities like London, Singapore, New York, Tokyo, etc. In major global cities, the consumption of office space is around 60-65 sq ft per household. In Mumbai, it is 25 sq ft, while in Kolkata it is 14-15 sq ft and in Delhi-NCR it is 20-25 sq ft per household. However, in Bengaluru, the office space absorption is 50 sq ft per household. This means that the volume of office space and houses being supplied, are in equilibrium. In London, despite the high population, the number is at 50-55 sq ft per household. Singapore has 60-65 sq ft per household and New York has 160 sq ft per household.

What drives Bengaluru’s rental market?

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With Bengaluru matching global demand trends, it is attracting expat professionals who are on the lookout for rental properties. Ramesh Nair, CEO and country head of JLL India, explains that among the seven major office markets in India, Bengaluru continues to have the lowest vacancy levels, at slightly less than 4%. At a pan-India level, the average vacancy in commercial real estate stands at 15%, as of Q4 2016. “From these figures, it is clear that IT hubs continue to see a good supply-demand equilibrium, compared to other markets in the country. Developers in these IT hubs, especially Bengaluru and Pune, need to look at addressing the existing space crunch, before the situation forces occupiers to consider other cities,” says Nair.

JC Sharma, VC and MD of Sobha Ltd, maintains that the rental values in Bengaluru also appear to be high, because the capital values are realistic. “Bengaluru is the only city that is truly demand-driven and the increasing expansion of the corporate sector in the city, only indicates that the trend of high rental yields will gain momentum. As of now, we are looking at Bengaluru’s rental yields on an international benchmark and not against the national average,” says Sharma. The only question now, is whether the city’s rental yields can once again touch the 7%-8% mark, which is prevalent in the major cities of the world.

Reasons for Bengaluru’s high rental yields

  • While rental yields in other Indian cities are in the range of 1%-1.5%, Bengaluru’s rental yields are around 3%-4%.
  • In 2007, the city’s rental yields had been in the range of 7.16% to 9.92%, as per the Global Property Guide.
  • The consumption of office space per household in Bengaluru can be compared with global cities like London, Singapore, New York and Tokyo.
  • In major global cities, the consumption of office space is around 60-65 sq ft per household and in Bengaluru it is 50 sq ft.

(The writer is CEO, Track2Realty)

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Category: Lifestyle

Debora Berti

Università degli Studi di Firenze, IT

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