Hyderabad emerged as the leader in the commercial office space market in the fiscal year 2023, surpassing Bengaluru in terms of new office supply. According to the latest data from ANAROCK Research, Hyderabad witnessed the highest influx of new office spaces, with approximately 14.94 million square feet added during the year. This accounted for a 31% share of the total office supply in the top 7 cities. In contrast, Bengaluru saw approximately 12.66 million square feet of new office completions, representing a 26% share and a 13% decline from the previous fiscal year.
The National Capital Region (NCR) closely followed Bengaluru with around 8.82 million square feet of completed office spaces in FY23, marking a 52% annual increase. On the other hand, the Mumbai Metropolitan Region (MMR) witnessed a meager completion of only 4.18 million square feet, indicating a significant 46% decline compared to the previous fiscal year.
Bengaluru secured the highest net office absorption with around 9.88 million square feet, followed by NCR and Hyderabad with approximately 6.89 million square feet each.
The office vacancy rate in FY23 experienced a slight year-on-year decline of 0.1%, indicating improved occupancy levels. Average office rentals across the top 7 office markets witnessed a 4% yearly increase compared to the previous fiscal year.
Among the top 7 cities, Pune and Bengaluru demonstrated remarkable growth in office rentals, with a 10% and 9% increase, respectively. Hyderabad followed closely with a 7% year-on-year gain in office rentals.
Despite the mixed performance of the commercial office space market in FY23, the decline in vacancy levels provides a silver lining. Average Grade A office vacancy levels across the top 7 cities decreased by 0.1% year-on-year, settling at 15.9% in FY23. Pune boasted the lowest vacancy rate at 8.3%, followed by Chennai at 10.27%, and Bengaluru at 11.15%.
Office rentals experienced a 4% year-on-year surge in the top 7 office markets. The average rentals for Grade A office spaces in India reached INR 79 per square foot per month, representing a 4% increase from the previous fiscal year. MMR retained its position as the most expensive office rental market, with rentals reaching INR 132 per square foot per month. Bengaluru and NCR followed with rentals averaging at INR 85 and INR 82 per square foot per month, respectively. Kolkata had the lowest average office rentals at INR 54 per square foot per month.
The COVID-19 pandemic and subsequent lockdowns had a significant impact on office space demand in India. With the implementation of work-from-home policies and restrictions on physical office operations, companies were compelled to reevaluate their workspace requirements. Many organizations experienced a shift towards remote work arrangements, resulting in a reduced immediate demand for office spaces.
Uncertainty surrounding the duration and severity of the pandemic further dampened the enthusiasm for leasing or expanding office spaces. As a result, the office real estate market in India witnessed a slowdown, with decreased absorption rates and a decline in new leasing activities. The pandemic-induced disruption accelerated the adoption of remote work practices and forced companies to rethink their office space needs, leading to a temporary setback in the demand for commercial office spaces.
Pune and Bengaluru led the pack with the highest year-on-year increase in average office rental values, growing by 10% and 9% respectively. Hyderabad followed closely with a 7% gain, while MMR and NCR experienced a 5% increase each. Kolkata witnessed a 4% rise, and Chennai maintained a steady 3% growth in average office rentals compared to the preceding financial year.
Prashant Thakur, Sr. Director & Head of Research at ANAROCK Group, acknowledged the robust growth in the office real estate market during the first half of FY23, which was overshadowed by the global economic slowdown in the second half. The trend of subdued office space growth in India is expected to continue in the near future due to major challenges such as corporate layoffs and global recessionary trends. Thakur also expressed cautious optimism, expecting some stability in the office market by the second half of 2024, depending on the global economic landscape.
