Indian office space yields highest in Asia-Pacific

Chennai: Investors find Indian office space realty favourable than many other markets in the Asia-Pacific region due to higher yield.

With a cap rate or yield of 8.8 per cent, India offers the highest return potential in the office segment among its peers, finds a Knight Frank report. Cap rate or capitalization rate represents the yield of a property over a one year time horizon assuming the property is purchased on cash and not on loan.

In the Asia-Pacific region, China Tier 1 has a cap rate of 4.4 per cent, Seoul has 4.8 per cent, Hong Kong 2.3 per cent, Tokyo 3.9 per cent, Philippines 5.9 per cent, Thailand 7 per cent, Malaysia 6.5 per cent, Indonesia 6.5 per cent and Singapore has a cap rate of 4.1 per cent.

According to the report, many Asia-Pacific central banks have opted for a more dovish stance on their monetary policies with the ongoing trade tensions and heightened economic uncertainties. In the past six months alone, five Asia-Pacific central banks have cut their benchmark interest rates following weaker than expected economic readings. This has affected real estate yields in the respective markets. While India too has brought down the interest rates, the supply - demand situation for office space is better in India.

In the first half of this year, there was a 31 per cent growth in new supply and 26 per cent growth in transactions. At 27.4 million sq ft, transactions were higher than supply of 23.9 million sq ft.

"India's office market offers some of the best returns for investors with over 8 per cent yield, based on the fact that the underlined demand - supply dynamics are favourable for investors. This is demonstrated by the fact that four out of eight office markets have single digit vacancy levels underscoring the strength of this segment. H1 2019 recorded the highest ever, 6 months, office transactions of over 27 million square feet," said Sharad Agrawal, Executive Director - Capital Markets, Knight Frank India.

While Ahmedabad, Hyderabad and Bengaluru are the top three cities which have seen largest percentage change in supply of office properties in H12019, Mumbai, Hyderabad and Kolkata have registered high growth in transactions.