Office locations in Mumbai, Delhi among priciest in the world: Survey

While Delhi's central business district, Connaught Place has broken into the top ten list with commercial space rentals increasing 46 percent during the year to an estimated Rs.423 per square foot a month (or $128 per square foot a year), rentals at financial hub Mumbai's posh Nariman Point have zoomed 60 percent to peak at Rs.546 per sq ft per month (or $166 per square foot a year).

Demand for commercial space in these two cities have made rental prices skyrocket making Nariman Point the 5th most expensive office location in the world (previously ranked 7th) while Connaught Place has broken into the top ten (previously rank 12th).

Surprisingly, these two locations are costlier than the most posh office areas in cities like New York, Washington, San Francisco, Rome, Zurich, Shanghai, Dubai and Frankfurt.

However, Mumbai Central has slipped two places to No.7.

In Gurgaon, a part of National Capital Region (NCR), areas like DLF Phase I and office space on NH-8, witnessed high appreciation of 47 percent with rental price rising to Rs.113 per square foot a month.

In Maharashtra, the rental price rose by 33 percent in Central Worli, while in suburban Powai, it zoomed by 80 percent to touch Rs.110 per square foot a month.

"Most micro markets in Mumbai saw an upward trend in rental values largely due to very low vacancy and lack of new supply in these micro markets as projects were delayed. The city saw only approximately 0.45 million square feet of supply in 2007 with it largely being non-IT and essentially absorbed by the banking & financial Institutes, media & insurance," said Sanjay Dutt, joint managing director, Cushman &Wakefield.

According to Dutt, the boom in India's economy that led to corporate expansion has also impacted the market. "However, high rental values witnessed across the country would not be sustainable beyond 12 months given the significant IT supply planned to enter the market in during 2008," he said.

The highest rental growth in India was, surprisingly, achieved by Kolkata's Rashbehari Connector with an increase of 86 percent. However, in spite of the increase, the monthly rental price currently stands at a measly Rs.65 per square foot a month.

Other notable growths in India were recorded in suburban locations in Mumbai such Andheri (71 percent) and Malad (64 percent).

In the south, Hyderabad's Begumpet/Raj Bhavan Road registered the biggest rental rise with 44 percent.

Other cities like Pune, Chennai and Bangalore witnessed comparatively modest increase of 27 percent, 24 percent and 26 percent respectively.

Interestingly, the survey reveals that India is the best performer in the commercial space market in the world, with average rental price growing at an estimated 36 percent as against an average rise of 25 percent in the Asia-Pacific region. In the US, increment in rental price averaged 18 percent versus a 14 percent increase in Europe.

According to the survey, London's posh West End office location continues to head the list at €2,277 (£1,700) per square meter (or $312 per square foot) a year. While the rentals in West End zoomed 30 percent over the year and now cost three times as much as midtown Manhattan in New York ($100 per square foot a year) and twice as much as Paris ($142 per square foot a year), the cost of City of London offices, including local taxes and rents, grew by a modest 8 percent to €1,298 (£965) per square meter per year (or $177 per square foot a year).

Rounding up the top five in the list in terms of annual rental are Hong Kong (at No.2 with rental at $238.58) Tokyo (No.3 with rental at $210.12), Mumbai (No.4 with rental at $166.04) and Moscow (No.5 with rental at $158.72).

Globally, significant rise in rentals (country-wise) were seen in the Levent district in Istanbul (up 95 percent) and Singapore (up 78 percent).

"Rental growth in Singapore was led by strong demand from the banking and services sectors coupled with very limited supply of quality office space," Arsh Chaudhry, executive managing director (South-East Asia), Cushman & Wakefield, said.

Expensive US markets noted in the survey include Boston ($78.87), Washington, D.C. ($61.93) and Downtown Manhattan ($66.12).

The survey compares office occupancy costs in 203 key locations in a record 58 countries around the world, with new entries in the global ranking including Kiev in Ukraine (at No.16) and Vietnam's Ho Chi Minh City (at No.17). Of these 203 locations, 79 percent showed rental growth last year, 20 percent stable rents and only 1 percent showed a rental fall (compared with 6 percent the previous year). Overall globally, rentals grew by 14 percent in 2007, compared with 10 percent in 2006.

The strongest riser in the global ranking is Oslo in Norway, which went up 14 places to No.11.

Cushman & Wakefield said rents had risen by an average 40 percent in the world's top 10 office locations in 2007 but said the pace of growth could drop off in 2008 as the US battles to fend off recession and Europe's biggest banks assess staff numbers in the wake of the subprime mortgage crisis.

"Last year saw the fastest level of growth in office occupancy costs in many of the world's top locations since the turn of the property cycle in 2001, with the strongest demand coming from the financial sector," Elaine Rossall, head of business space research, Cushman & Wakefield, said.

"Behind this growth is a shortage of top-quality product as developers remain relatively cautious, especially compared with the previous peak years of 2001 and 2002," Rossall explained.

"We are unlikely to know the full effects of the current credit squeeze on the world's main office locations until further into 2008," she said. "In the meantime, we foresee the market for the right product in the right location remaining robust, especially in the more buoyant markets of Asia Pacific, although expectations are that last year’s strong rental growth will ease this year."

This year's world's ten most expensive office locations are: London (West End), Hong Kong (Central), Tokyo (Central), City of London, Mumbai (Nariman Point), Moscow (Garden Ring), Mumbai Central (Worli), Paris (Central Business District), Singapore (Raffles Place) and Delhi (Connaught Place).

Country-wise, the most expensive office locations are: London (UK), Hong Kong (China), Tokyo (Japan), Mumbai (India), Moscow (Russia), Paris (France), Singapore (Singapore), Dubai (UAE), Dublin (Ireland) and New York (USA).