Southern Cities ahead as compared to other regions in Commercial Leasing activity; see up to 26% rise in average rent in 6 Yrs on sustained demand

The Indian office real estate market has seen a phenomenal rise in demand in the last few years with year 2024 recording the highest net absorption across the top 7 cities since 2019. Interestingly, the Southern cities have outshone other regions in overall office market activity including net absorption and new supply addition in the last six years.

In terms of office rentals too, the latest ANAROCK Research reveals that the South cities (Bengaluru, Chennai and Hyderabad) lead with up to 26% rise in average office rentals between 2019 and 2024.

• Bengaluru leads with a 26% rise in office rentals in the period – from Rs 74 per sq. ft. per month in 2019 to Rs 93 per sq. ft. per month in 2024, followed by Hyderabad with 25% growth – from Rs 56 per sq. ft. in 2019 to Rs 67 per sq. ft. in 2024 and Chennai with 20% rise – from Rs 60 per sq. ft. in 2019 to Rs 75 per sq. ft.
• In contrast, NCR in the North saw least average monthly rental growth of 10% in the period – from Rs 78 per sq. ft. per month in 2019 to Rs 86 per sq. ft. in 2024.
• Western cities including Pune saw 19% growth – from Rs 68 per sq. ft. to Rs 81 per sq. ft. in 2024 while MMR saw 13% growth – from Rs 124 per sq. ft. in 2019 to Rs 140 per sq. ft. in 2024.

Meanwhile, despite the massive new supply addition of over 48.11 mn sq. ft. in 2024 across the top 7 cities, office vacancies dropped to 16.5% in 2024 as against 17.8% in 2023. However, in comparison to 2019 when vacancies in the top 7 cities stood the lowest at 13.50%, the office vacancies continue to be higher presently. Notably, among the top 7 cities, Chennai had the least office vacancy of 9.30% in 2024.

Mr. Peush Jain, MD-Commercial Leasing and Advisory, ANAROCK Group said: “The Southern siblings of Bengaluru, Hyderabad and Chennai has seen the lions’ share of space absorption. These cities have had an average growth of 25% in rentals over the last 6 years with 57% share in new supply; is due to its robust IT infrastructure ecosystem with availability of skilled workforce that has enabled corporations to invest in these cities.”

“Driven by strong demand primarily from the technology sector and flex spaces, most key markets would see sustained office space demand in next 6-8 quarters.”

“As India continues to be one of the fastest growing economies, global corporates will look to establish their GCCs for expansion. The start-up ecosystem has again gained momentum and they too will be major drivers of office demand alongside the BFSI sector”.

New Office supply & Net Absorption Dynamics

 In the last six years (2019-2024) a total of nearly 283.21 mn sq. ft. of office space has been added across the top 7 cities with 2022 recording the highest new supply addition of 57.75 mn sq. ft. Overall, the South cities added nearly 172.96 mn sq. ft. of office space comprising a whopping 61% overall share. Western cities added over 60.31 mn sq. ft. space or 21% share. NCR added 17% share or approx. 47.39 mn sq. ft. new office supply.

If we deep-dive, in 2024, a total of 48.11 mn sq. ft. of new office supply has been added across the top 7 cities. Interestingly, of this total new office supply added, the Southern cities of Hyderabad, Bengaluru and Chennai comprised a whopping 57% share or approx. 27.65 mn sq. ft.  This was followed by the Western cities of MMR and Pune with 30% share or approx. 14.5 mn sq. ft. North’s NCR comprised just 12% overall share or approx. 5.93 mn sq. ft. area.

Further, net office absorption across the top 7 cities in the six-year period stood at nearly 224.18 mn sq. ft. Of the net absorption in the last six years, South cities comprised 56% share or approx. 125.84 mn sq. ft., followed by West with 25% share or approx. 55.18 mn sq. ft.

The highest net absorption in the last six years was in 2024 – of approx. 49.95 mn sq. ft. Again, Southern cities comprised the highest 55% share or approx. 27.32 mn sq. ft., followed by the West cities with 24% share and NCR with 19% share while Kolkata with just 2% share.

Interestingly, sector-wise transaction data trends indicate the growing prominence of co-working sector in the last six years. Back in 2019 this sector comprised 15% share of gross leasing across the top 7 cities. The share of co-working jumped up to over 25% in 2023 but 2024 saw a slight decline to over 21% share.

Further, the BFSI sector too has seen rising demand in the period with its overall share increasing from 7% in 2019 to 17% in 2024. In contrast, the IT/ITeS sector share in gross absorption has come down to just 28% in 2024 from 42% in 2019.

Source: ANAROCK Research