MIT Develops Office Rent Index

The Massachusetts Institute of Technology has created office realty rent indices for India’s top six cities in collaboration with Propstack in the run-up to opening up of India’s Real Estate Investment Trust market that prompted large investments from global institutional funds.

The development assumes significance as the maiden index for Indian office real estate market is expected to bring greater transparency into this segment and could trigger higher institutional investments from large sovereign wealth and pension funds.

MIT Center of Real Estate has developed these indices, based on data from realty information and analytic firm Propstack, for Mumbai, National Capital Region, Bangalore, Pune, Chennai and Hyderabad. These indices have been developed from data of last 12 years related to rent and its growth on quarterly basis in these six key markets.

“We introduce new methodology for constructing real estate rent indices. Using unique data on contract rents from six Indian metropolitan markets, we pair subsequent rented units in the same building to create over 12,000 pseudo repeat rent pairs,” said the paper released by MIT’s Sheharyar Bokhari, David Geltner, and Alex van de Minne.

Rent indices are an important indicator for tracking the space market and can be used to support asset allocation, performance measurement and attribution, transparency, research and investment product development.

“Indian commercial market has been witnessing steady and robust growth in the last few years owing to improving macro-economic factors leading to business development. This coupled with uptake in office space absorption, rental growth and improving transparency has been attracting global investments. With the upcoming REIT listings, indices tracking rental growth in key markets would help in pushing this further,” said Raja Seetharaman, cofounder, Propstack.

Among the six Indian office markets, Bengaluru has seen the biggest increase in rents since 2010 more than 5% annually. Chennai and Pune grew annually at 2.8% and 2.7%, respectively. Hyderabad and the NCR office market rents have increased 1.9% and 1.8% per year, respectively.

While Mumbai had the slowest annual growth at 0.4%, it had grown tremendously during in 2005-2008, when rents more than doubled. The growth indicates that important emerging markets such as India need to develop sophisticated commercial realty information analytics.

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