The commercial office space market in India’s top 7 cities demonstrated resilience amid global economic challenges, showcasing a steady trajectory in rental values despite stagnant net absorption and new completions. An assessment of H1 FY2024 reveals pivotal insights into rental trends, vacancy rates, and shifting market dynamics.
Rental Value Escalation: Grade A office space rentals surged by 7% on a year-on-year basis, averaging at INR 83/Sq. Ft./Month, notably up from INR 77.5/Sq. Ft./Month in H1 FY23. Chennai spearheaded this growth with a substantial 10% yearly surge, followed closely by Hyderabad at 8%. Bengaluru, Pune, and Kolkata each experienced a commendable 7% annual increment. Meanwhile, MMR and NCR registered a 5% surge in rental values.
| City | H1FY23 | H1FY24 | % Change |
|---|---|---|---|
| Bengaluru | 84 | 90 | 7% |
| MMR | 130 | 136 | 5% |
| NCR | 81 | 85 | 5% |
| Chennai | 62 | 68 | 10% |
| Hyderabad | 61 | 66 | 8% |
| Pune | 74 | 79 | 7% |
| Kolkata | 54 | 58 | 7% |
| Top 7 Cities | 78 | 83 | 7% |
Sector-Wise Analysis: Although IT/ITeS continued dominating leasing transactions in H1 FY2024, its overall market share has gradually declined from 46% in H1 FY2020 to a modest 29% in H1 FY2024. Conversely, coworking spaces have seen a notable surge, expanding from an 11% share in H1 FY2020 to a substantial 24% in H1 FY2024.
Vacancy Rate Dynamics: Vacancy rates experienced a marginal uptick of 0.95%, rising from 15.9% in H1 FY23 to 16.85% in H1 FY24 across the top 7 cities. Pune exhibited the lowest vacancy rate at 8.3%, while NCR, MMR, and Kolkata witnessed a reduction in vacancy levels.
| Cities | H1FY23 | H1FY24 |
|---|---|---|
| Bengaluru | 10.90% | 11.40% |
| MMR | 15.00% | 14.55% |
| NCR | 28.55% | 27.75% |
| Chennai | 10.30% | 10.30% |
| Hyderabad | 15.90% | 18.50% |
| Pune | 7.80% | 8.30% |
| Kolkata | 23.10% | 23% |
| Avg. Vacancy | 15.90% | 16.85% |
Outlook: Despite short-term challenges stemming from global factors, the mid-to-long-term outlook for the Indian commercial office space market remains positive. The availability of Grade A offices at competitive rents signifies potential stability in the market, anticipated to reemerge by the second half of 2024.
Key Insights:
- Hyderabad witnessed a significant influx of new office supply, surpassing Bengaluru in H1 FY24.
- Bengaluru maintained its lead in net office absorption among the top 7 cities in H1 FY24.
- The office market share of coworking spaces experienced substantial growth, with Bengaluru exhibiting a remarkable increase from 23% in H1 FY23 to 32% in H1 FY2024.
- Small-ticket leasing, encompassing spaces below 0.05 Mn Sq. Ft., dominated office leasing activity, constituting a substantial 53% share across the top 7 cities.
This analysis signifies the resilient nature of India’s commercial office space market amidst global economic fluctuations, laying groundwork for optimistic projections in the foreseeable future.
Also Read: Office Rental Values Increase in Top Indian Cities