Throughout FY23, Hyderabad witnessed the infusion of an impressive 14.94 million square feet of new office space, accounting for a substantial 31% share of the total supply in the top 7 cities. This marked a significant 27% increase in office supply completions compared to the previous fiscal year. In contrast, Bengaluru recorded approximately 12.66 million square feet of office supply completions, representing a 26% share, which was 13% lower than the previous fiscal.
In FY23, the National Capital Region was close behind with approximately 8.82 million square feet of office space, marking a remarkable 52% annual increase. On the other hand, Mumbai Metropolitan Region (MMR) saw a mere 4.18 million square feet of new office supply, representing a significant 46% decrease compared to the previous fiscal year.
When it comes to net office absorption, Bengaluru emerged as the leader, with approximately 9.88 million square feet of office space absorbed. NCR and Hyderabad followed closely with approximately 6.89 million square feet and 6.88 million square feet of office space absorbed, respectively.
“The robust growth seen in the office real estate market in the first half of FY 2023 was short-lived. The global slowdown in major economies of the world cast a shadow on the Indian office market in the second half,” said Prashant Thakur, Sr. Director & Head – Research, ANAROCK Group
“This trend is likely to continue in the near future. Major headwinds including layoffs by corporates and global recessionary trends will continue to mar office space growth in India,” he added.“Currently, the Indian economy is stronger than most developed nations, but the future bears watching,” said Thakur. Thakur further added that the currently depressed Indian office market may not improve till the first half of 2024. He said many IT/ITeS companies have scaled down their business and are not looking to expand. Office markets across the top 7 cities will thus remain muted in the remaining months of 2023 and early 2024. We expect some stability from the second half of 2024, depending on how the global economy shapes up.
Drop in vacancy levels
Despite the challenges posed by layoffs and limited company expansions in the second half of the fiscal year, the average Grade A office vacancy levels in the top 7 cities of India witnessed a 0.1% year-on-year decline and restricted expansion of companies in the second half – from 16% in FY22 to a marginally better 15.9% in FY23.
Among these cities, Pune stood out as the only city with office vacancy levels in the single digits, at 8.3%. Chennai followed closely with a vacancy rate of 10.27%, while Bengaluru recorded a vacancy rate of 11.15%. These figures establish Pune, Chennai, and Bengaluru as the cities with the lowest office space vacancy rates among the top 7 cities in the current fiscal year.
Office Rentals see 4% year-on-year surge
India’s top 7 office markets experienced a notable 4% annual rise in average office rentals. During the fiscal year 2022-23, the average rentals of Grade A office spaces across the country reached INR 79 per square foot per month, reflecting a 4% increase compared to FY22. This upward trajectory in rental prices can primarily be attributed to the escalation in input costs.
Among the top 7 office markets in India, MMR maintained its position as the most expensive office rental market, with rental rates soaring to INR 132 per square foot per month. Bengaluru followed closely at INR 85 per square foot per month, while the National Capital Region (NCR) secured the third spot with rentals averaging at INR 82 per square foot per month. Kolkata had the lowest average office rentals in the current fiscal year, with rates standing at INR 54 per square foot per month.
In terms of year-on-year increases, Pune and Bengaluru led the pack with the highest growth rates in average office rental values, experiencing a significant 10% and 9% increase, respectively. Hyderabad followed closely with a Y-o-Y gain of 7%, while both MMR and NCR witnessed a 5% rise each. Kolkata observed a 4% increase, and Chennai demonstrated steady growth with a 3% rise in average office rentals compared to the previous financial year.
