FY 2023 has been a mixed bag for the commercial office space market in the top 7 cities, with the first half doing much better than the second. Real estate consultancy Anarock Research said that its data indicates that Hyderabad outshone Bengaluru with the highest new office supply influx in FY 23.
According to the report, 14.94 million square feet (Mn sq. ft.) new office space was infused into Hyderabad in FY23, accounting for a 31% share of the total supply in the top 7 cities. Office supply completions in the city were 27% higher than in FY 2022. In contrast, Bengaluru saw approx. 12.66 Mn sq. ft. of office supply completions, comprising a 26% share and 13% lower than the previous fiscal.
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NCR was close behind with approx. 8.82 Mn sq. ft. office space completed in FY23 – up by 52% annually. MMR saw a mere 4.18 Mn sq. ft. of new office supply completed in FY23 – down 46% from the previous fiscal year.
Net office absorption was highest in Bengaluru (approx. 9.88 Mn sq. ft.), followed by NCR and Hyderabad with approx. 6.89 Mn sq. ft. and 6.88 Mn sq. ft. respectively.
Prashant Thakur, senior director and head- research, Anarock Group, said, “The robust growth seen in the office real estate market in the first half of FY 2023 was short-lived. The global slowdown in major economies of the world cast a shadow on the Indian office market in the second half. This trend is likely to continue in the near future. Major headwinds including layoffs by corporates and global recessionary trends will continue to mar office space growth in India.”
“Currently, the Indian economy is stronger than most developed nations, but the future bears watching,” added Thakur.
“The currently depressed Indian office market may not improve till the first half of 2024. Many IT/ITeS companies have scaled down their business and are not looking to expand. Office markets across the top 7 cities will thus remain muted in the remaining months of 2023 and early 2024. We expect some stability from the second half of 2024, depending on how the global economy shapes up.”
Office Rentals See 4% YoY Surge
India’s top 7 office markets witnessed a decent 4% yearly increase in average office rentals. In the fiscal year 2022-23, the average rentals of Grade A office spaces pan India reached Rs 79/sf/month – a 4% increase over FY22. This upward trend can be attributed largely to the escalation in input costs.
Among the top 7 office markets, MMR maintained its position as the most expensive office rental market, with rentals soaring to Rs 132/sf/month. Bengaluru followed at Rs 85/sf/month, and NCR came third with rentals averaging at Rs 82/sf/month. On the other end of the spectrum, Kolkata had the lowest average office rentals in the current fiscal, with Rs 54/sf/month.
Leading the pack with the highest Y-o-Y increase in average office rental values were Pune and Bengaluru, with growth rates of 10% and 9% respectively. Hyderabad came next with a Y-o-Y gain of 7%, and both MMR and NCR saw a 5% increase each. Kolkata witnessed a 4% rise, and Chennai saw a steady 3% growth in average office rentals compared to the preceding financial year.
Silver Lining – Drop In Vacancy Levels
Average Grade A office vacancy levels in the top 7 cities witnessed a 0.1% Y-o-Y decline despite layoffs and restricted expansion of companies in the second half – from 16% in FY22 to a marginally better 15.9% in FY23.
Pune is the only city where office vacancy hovers in the single digits at 8.3%. Chennai follows with a vacancy rate of 10.27%, while Bengaluru registered a vacancy rate of 11.15% – making these the cities with the lowest office space vacancy among the top 7 cities in the current fiscal year.
In terms of the average annual vacancy rates in these cities, Hyderabad alone saw a notable increase of 0.5%. The remaining 6 cities experienced a decline in vacancy levels ranging from 0.1% to 0.5%. Among them, the most significant decrease was in MMR, with a drop of 0.5%. Kolkata followed with a decrease of 0.4%, and Pune with a decrease of 0.2%.
Bengaluru, Chennai, and NCR each witnessed a modest decline of 0.1% compared to the vacancy levels in FY2021-22.
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