ICRA estimates the net absorption of office leasing across the top six cities in India to decline by 10% YoY in FY2024. This along with an influx of huge supply in FY2024, would result in a marginal rise in vacancy levels by 60 bps to 15.5% by the end of FY2024.
The office developers are expected to witness a revenue growth of 11-13% in FY2024 for ICRA’s sample set of non-REIT companies, supported by scheduled rent escalation and improvement in occupancy levels of reputed office players.
Further, the rental rates are estimated to rise by 3-5% YoY in FY2024, driven by contracted escalations/lease renewals at higher rates. ICRA’s outlook on the commercial office sector is Stable.
The net absorption of office leasing stood healthy at ~57 million square feet (msf) in FY2023 similar to FY2020 levels (22 msf in FY2021 and 33 msf in FY2022) as corporates continued to focus on returning to office, and additional space was required for existing tenants. Physical occupancy increased to around 65% as of June 2023 from 25% in June 2022.
As on June 30, 2023, the total grade A office stock in the top six markets stood at around 880 msf, with Bengaluru having the highest supply of 27% followed by Delhi NCR and the Mumbai Metropolitan Region. During FY2023, Hyderabad pipped Bangalore in overall supply addition, which is expected to continue in FY2024. The supply is estimated at around 63-64 msf in FY2024, with Hyderabad accounting for 34%, followed by Bengaluru (23%) and Pune (13%).
