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, according to data shared by ANAROCK. New office supply across the top seven cities rose by a meagre 5 percent in H1 FY2024 against H1 FY23, and net office absorption saw a marginal yearly decline of 1 percent in this period.
“Interestingly, average rental values across the top 7 cities witnessed a 7 percent 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 Rs 83 per sq ft per month across the top 7 cities in H1 FY2024, while in the corresponding period in FY23, it was approx. Rs 77.5 per sq ft,” said Prashant Thakur, Regional Director & Head - Research, ANAROCK Group.
Chennai witnessed the highest increase with a 10 percent yearly jump in average monthly office rental values – from Rs 62 per sq ft in H1 FY2023 to approx. Rs 68 per sq ft in H1 FY2024. Hyderabad came next with an 8 percent yearly growth. The average monthly office rental value in the city rose from Rs 61 per sq ft in H1 FY2023 to approx. Rs 66 per sq ft in H1 FY 2024.
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Bengaluru, Pune, and Kolkata each saw a 7 percent annual growth in office rental values in this period, while MMR and NCR registered a 5 percent jump each.
Meanwhile, Hyderabad has surpassed Bengaluru with the highest influx of new office supply in H1 FY24 while Bengaluru continues to lead in net office absorption among the top 7 cities in H1 FY24.
Weathering the storm
“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," said Thakur. "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. New completions saw a meagre 5 percent yearly jump in the period and net absorption dropped by just 1 percent,” he added.
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 the IT/ITeS sector in overall leasing was a whopping 46 percent, while in H1 FY2024, its share dropped to just 29 percent.
Consequently, the share of coworking spaces has been on the rise – from 11 percent in H1 FY2020 to 24 percent in H1 FY2024. 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.
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 percent - from 15.9 percent in H1 FY23 to 16.85 percent 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 percent. NCR, MMR, and Kolkata witnessed a Y-o-Y reduction in vacancy levels with 0.8 percent, 0.45 percent, and 0.1 percent, respectively. Chennai maintained equilibrium in its vacancy rates throughout the period.
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In Pune, Bengaluru, and Hyderabad, office space vacancy levels increased by 0.5 percent, 0.5 percent, and 2.6 percent, respectively, over 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, ANAROCK said. Stability in the office market may return in the second half of 2024.
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