Rental yield highest in Bengaluru; Mumbai next

With a steep rise in rental housing demand in the top cities, average rental values have soared and rental yields — the annual return on investment (ROI) investors earn from capital invested in a property — have been heading steadily north.

According to the latest ANAROCK data, India’s IT hub Bengaluru topped the list with a rental yield of 4.45% in the first quarter of calendar year 2024. Backed by strong post-pandemic rental demand, rental values in the city's key areas have been rising inexorably after IT companies' return to office call. Bengaluru’s rental yield in pre-Covid 2019 stood at 3.6%, which amounts to a growth of 24% in this period.

Mumbai comes next among the top cities with a rental yield of 4.15% in Q1 CY24 as against 3.5% back in 2019 – a 19% growth. Gurugram is close behind with a rental yield of 4.1% in the last quarter against 3.5% in 2019.

“Residential rental yields in India had chronically stagnated before the Covid-19 pandemic, with the national average at just 3% for many years,” says Santhosh Kumar, vice chairman of ANAROCK Group. “With post-pandemic rental demand soaring after offices resumed, rental yields are heading north too. IT dominated cities including Bengaluru, Gurugram, Pune and Noida, and also MMR, have seen considerable upticks in their rental values, and therefore yields.”

Residential rental values in India’s top cities have resurged tremendously after the pandemic, with 2023 seeing them soar by over 30%. In the last quarter of 2023, rental values stabilised in most cities as renting activity usually abates in the last quarter of the year. However, the rental real estate market picked up momentum again in the first quarter of 2024.

In the prominent localities of the top seven cities, there has been an average 4-9% jump in residential rents. Considering that the typical annual increase is 5-10%, this is very significant and while it certainly bodes well for landlords, it signifies a worrisome element of cost-of-living inflation for tenants.

India’s Silicon Valley Bengaluru leads this trend. As per ANAROCK data, the average rental values in Sarjapur Road and Whitefield rose by 8% each in Q1 2024 against the previous quarter. In Sarjapur Road, the average monthly rent in Q4 2023 stood at around ₹31,600 for a standard 2 BHK flat of 1,000 sq. ft. – in Q1 2024, it went up to approx. ₹34,000. Similarly, Whitefield saw average monthly rents go up from ₹30,200 in Q4 2023 to ₹32,500 in Q1 2024 - an 8% jump. A comparison of rental values between 2022-end and Q1 2024 shows that top localities in Bengaluru saw a staggering hike of 40% and above.

The trend is not limited to Bengaluru; other key cities have also witnessed rental inflation, though not to the magnitude seen in Bengaluru. In NCR, Noida’s Sector 150 saw average rents rise by 9%, and Delhi's Dwarka by 6%. In Mumbai, Chembur and Mulund saw 4% growth each in rental rates. In Chembur, the avg. rental rates in Q1 2024 stood at around ₹62,500 per month as against ₹60,000 per month back in Q4 2023.