Office Rental Values Rise 7% YoY In Top 7 Cities
The first half of fiscal year 2024 remained lacklustre for commercial office space activity across the top 7 cities, with both net absorption and new completions remaining largely stagnant compared to same period last year. New office supply across the top 7 cities rose by a meagre 5% in H1 FY2024 against H1 FY23, and net office absorption saw a marginal yearly decline of 1% in this period. Notably, Chennai witnessed the highest 10% yearly jump in average monthly office rental values – from INR 62 per sq. ft. in H1 FY2024 to approx. INR 68 per sq. ft. in H1 FY2023. Hyderabad came next with an 8% yearly growth. The average monthly office rental value in the city rose from INR 61 per sq. ft. in H1 FY2023 to approx. INR 66 per sq. ft. in H1 FY 2024. Bengaluru, Pune, and Kolkata each saw 7% annual growth in office rental values in this period, while MMR and NCR registered a 5% jump each. Avg. monthly office rental value in Bengaluru stood at INR 90 per sq. ft. in H1 FY2024, against INR 84 per sq. ft. in H1 FY2023.In Pune, the avg. office rental value stood at INR 74 per sq. ft. in H1 FY2023 while in H1 FY2024, it was INR 79 per sq. ft. Kolkata saw a 7% yearly rise in avg. monthly office rental value in H1 FY24, reaching INR 58 per sq. ft. compared to 54 per sq. ft. in H1 FY2023. The city currently has the most economical office rental values among the top 7 cities. MMR, the most expensive office market in the country, saw monthly avg. office rental value jump from INR 130 per sq. ft. in H1 FY 2023 to INR 136 per sq. ft. in H1 FY2024. In NCR, the avg. office rental value stood at INR 81 per sq. ft. in H1 FY2023 while in H1 FY2024, it stands at INR 85 per sq. ft. In terms of sector-wise net absorption, IT/ITeS continues to dominate leasing transactions in H1 FY2024. However, the sector’s overall share in leasing has been on a decline year-on-year. In H1 FY2020, the share of IT/ITeS sector in overall leasing was a whopping 46%, while in H1 FY2024, its share dropped to just 29%. Consequently, the share of coworking spaces has been on the rise – from 11% in H1 FY2020 to 24% in H1FY2024. This denotes a shift in the leasing trend by many corporates of various sizes who now see flexible workspaces as a viable and more cost-effective option. Amid increased office space completions, vacancy levels across most top cities rose marginally except in NCR, MMR, and Kolkata. The average vacancy rate of Grade-A offices in the top 7 cities collectively increased by 0.95% - from 15.9% in H1 FY23 to 16.85% in H1 FY24. An analysis of annual variations in average vacancy rates across the top 7 office markets shows that Pune currently has the lowest at 8.3%. NCR, MMR, and Kolkata witnessed a Y-o-Y reduction in vacancy levels with 0.8%, 0.45%, and 0.1%, respectively. Chennai maintained equilibrium in its vacancy rates throughout the period. In Pune, Bengaluru, and Hyderabad, office space vacancy levels increased by 0.5%, 0.5%, and 2.6%, respectively over the course of the financial year. While Indian commercial office space demand doubtlessly faces short-term challenges in the current global environment, the mid-to-long-term outlook remains positive, considering that Grade A offices are still available at sub-dollar rents. Stability in the office market may return from the second half of 2024.
Tags : commercial office space Bengaluru Pune Kolkata vacancy rate leasing transactions