In the second quarter of the year, average office rentals across six major cities in India remained stable at Rs 95 per square foot, despite a substantial 32% increase in new office space supply. This data was released by real estate consultant Colliers India, who provided insights into the office market performance in Bengaluru, Delhi-NCR, Mumbai, Chennai, Hyderabad, and Pune.
During April-June, the gross leasing of office space in the top six cities witnessed a modest 2% growth, reaching 14.6 million square feet, compared to 14.3 million square feet in the same period last year. The rise in demand was primarily driven by the technology, engineering, and manufacturing sectors.
Interestingly, Chennai emerged as a surprising leader in office demand, experiencing a three-fold jump in leasing activity, surpassing Delhi-NCR and Mumbai. New office supply in the six cities increased significantly by 32%, reaching 12.4 million square feet from the previous 9.4 million square feet.
Despite the surge in supply, the weighted average rental remained unchanged at Rs 95 per square foot per month. Peush Jain, the Managing Director of Office Services, India, at Colliers, attributed the steady rental rates to the equalization of demand and supply.
Jain also expressed optimism for the future, stating that as demand continues to improve in the coming quarters, there is a potential upside for rentals by the end of the year.
Analyzing the city-wise data, Bengaluru experienced a 22% decline in office space leasing, reaching 3.4 million square feet, compared to 4.4 million square feet in the same quarter last year. However, new supply more than doubled, increasing to 3.8 million square feet from 1.6 million square feet. Consequently, office rent in Bengaluru rose by 1% to Rs 91.9 per square foot per month.
In Chennai, the office leasing tripled, reaching 3.3 million square feet from 1.1 million square feet, while new supply jumped to 2.4 million square feet from 1 million square feet. Office rent in Chennai grew by 2% to Rs 75.1 per square foot per month.
In Delhi-NCR, office leasing saw an 11% increase, reaching 3.1 million square feet, compared to 2.8 million square feet in the same quarter last year. New supply rose by 43% to 2.1 million square feet from 1.4 million square feet. Monthly rent in Delhi-NCR appreciated by 2%, reaching Rs 94.2 per square foot.
Hyderabad, on the other hand, experienced a 22% decline in office demand, reaching 1.5 million square feet from 1.9 million square feet, while new supply fell 19% to 3 million square feet from 3.8 million square feet. Monthly office rent remained stable at Rs 73.7 per square foot.
Mumbai witnessed a significant drop in gross office space leasing, declining by 41% to 1.6 million square feet from 2.8 million square feet, with new supply plunging 79% to 0.2 million square feet from 1 million square feet. Despite this, office rent in Mumbai remained stable at Rs 140.2 per square foot.
Pune’s office leasing activities grew by 28%, reaching 1.7 million square feet during April-June this year from 1.3 million square feet in the same period last year. New supply increased by 52% to 0.9 million square feet. The average monthly office rent in Pune increased by 1%, reaching Rs 76.7 per square foot.
Colliers also highlighted that the share of office space leased by coworking operators increased to 17% from 11% during the period under review, reflecting the growing preference for flexible workspace options by businesses of all sizes.
Understand the following:
Overall, the office market in India shows resilience amidst rising supply, and with improving demand in the future, there is potential for rental growth by the end of the year.