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 the same period last year, said a report by ANAROCK. New office supply across the top 7 cities rose by 5 per cent in H1 FY2024 against H1 FY23, and net office absorption saw a marginal yearly decline of 1 per cent during this period.
Prashant Thakur, Regional Director & Head – Research, ANAROCK Group, said, “Interestingly, average rental values across the top 7 cities witnessed a 7 per cent growth in H1 FY24 when compared to the same period in FY23, essentially due to increased construction and input costs. ANAROCK Research data indicates that Grade A office rental values averaged at Rs 83 per sqft per month across the top 7 cities in H1 FY2024, while in the corresponding period in FY23, it was approx. Rs 77.5 per sqft.”
Demand from across major cities
In terms of cities, Chennai witnessed the highest 10 per cent yearly jump in average monthly office rental values – from Rs 62 per sqft in H1 FY2024 to approx. Rs 68 per sqft in H1 FY2023. Hyderabad came next with an 8 per cent yearly growth. The average monthly office rental value in the city rose from Rs 61 per sqft in H1 FY2023 to approx. Rs 66 per sqft in H1 FY 2024. Bengaluru, Pune, and Kolkata each saw 7 per cent annual growth in office rental values in this period, while MMR and NCR registered a 5 per cent jump each. Average monthly office rental value in Bengaluru stood at Rs 90 per sqft in H1 FY2024, against Rs 84 per sqft in H1 FY2023. In Pune, the average office rental value stood at Rs 74 per sqft in H1 FY2023 while in H1 FY2024, it was Rs 79 per sqft. Kolkata saw a 7 per cent yearly rise in average monthly office rental value in H1 FY24, reaching Rs 58 per sqft compared to Rs 54 per sqft in H1 FY2023. The city currently has the most economical office rental values among the top 7 cities, the report stated. MMR, the most expensive office market in the country, saw monthly average office rental value jump from Rs 130 per sqft in H1 FY 2023 to Rs 136 per sqft in H1 FY2024. In NCR, the average office rental value stood at Rs 81 per sqft in H1 FY2023 while in H1 FY2024, it stands at Rs 85 per sqft.
“It was widely anticipated that commercial office space demand in India will see a downturn amid layoffs by several large corporates worldwide, and shrinking business volumes. However, despite all headwinds, office activity remained largely unchanged in the first half of FY 2024 as compared to the corresponding period in FY 2023,” said Prashant Thakur.
In terms of sector-wise net absorption, ANAROCK said, 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 46 per cent, while in H1 FY2024, its share dropped to just 29 per cent. “Consequently, the share of coworking spaces has been on the rise – from 11 per cent in H1 FY2020 to 24 per cent 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,” the report stated.
Vacancy Rates
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 per cent – from 15.9 per cent in H1 FY23 to 16.85 per cent in H1 FY24. While Pune currently has the lowest at 8.3 per cent, NCR, MMR, and Kolkata witnessed a YoY reduction in vacancy levels with 0.8 per cent, 0.45 per cent, and 0.1 per cent, respectively. Chennai maintained equilibrium in its vacancy rates throughout the period. “In Pune, Bengaluru, and Hyderabad, office space vacancy levels increased by 0.5 per cent, 0.5 per cent, and 2.6 per cent, respectively over the course of the financial year,” it said.
Outlook
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, ANAROCK report concluded.