Chennai surged ahead of Bengaluru and Hyderabad in terms of office space leased by offshore multinational companies in 2003, Knight Frank India data showed.
MNCs leased 7 million square feet of office space in Chennai in CY2003 compared with 6.1 million sq. ft in Hyderabad and 5.6 million sq. ft in Bengaluru. Experts said high rental rates and issues such as congestion led overseas MNCs to look at emerging markets such as Chennai.
According to Vivek Rathi, national director of research at Knight Frank India, leasing activity has been strong in Chennai for the past couple of years. Almost 84 percent of the leasing in the city was in the global capability centre (GCC) segment.
"Lower commercial rentals in Chennai with a good supply of Grade A office spaces and supporting city infrastructure played a major role in boosting leasing activities," he said.
Rentals in Bengaluru and Hyderabad remained strong in FY24, with Bengaluru real estate prices touching a decade high in CY2023. Additionally, the manufacturing sector in Chennai remained strong in the electronic and automobile sectors, giving the city an edge over Bengaluru and Hyderabad in leasing activity.
The global IT slowdown over the past two years and layoffs have also affected Bengaluru's office sector, with domestic office leasing dipping by 14 percent YoY to 12.5 million sq. ft in 2023. In Chennai, office leasing grew about 92 percent to 10.2 million sq. ft in the same year.
"With a healthy market in Chennai, the GCC sector saw the infusion of new non-IT sectors like global banking corporations and R&D companies. In CY2024, Chennai has the potential to continue the lead from offshore leasing if the office sector maintains its leasing activities," Rathi added.
Offshore MNC demand
Leasing volumes by offshore companies in India increased 26 percent to 27.3 million sq. ft last year from the previous year.
Knight Frank India said global companies are increasingly seeking cost-effective solutions to minimise expenses, and a growing number are now looking towards offshoring functions as a strategic avenue.
Offshoring has emerged as a critical driver for office demand in four Asia Pacific hubs - India, the Philippines, Malaysia, and Vietnam.
Indian IT service exports are expected to expand to $230.5 billion in 2025 from $185.5 billion in 2023. The offshoring industry in India accounts for almost 60 percent of overall service exports in 2023, Knight Frank India said.
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