Average office rents across the top six cities in India have breached pre-pandemic levels for the first time in 2024, according to a report released by property consultancy Colliers on October 23.
The report highlighted that certain cities such as Hyderabad and Pune achieved pre-pandemic rental levels in 2022 itself and while Bengaluru and Chennai breached 2019 rental levels in 2023, Delhi-NCR and Mumbai completed the recovery cycle finally in 2024.
Overall, Delhi NCR and Pune saw the highest rise in average rentals at about 8% each during the five-year period, followed by Mumbai and Chennai with about 5-6% rise.
The report explained that in the post-pandemic era, demand recovery in the office market has been swift, following a steep โV-shapedโ recovery trajectory. After subdued demand in 2020 and 2021, leasing activity had fully bounced back by 2022. In fact, since 2022, each year has been witnessing new all-time-high Grade A office space uptake at India level, the report said.
Also Read: Gross office leasing touches 66.7 mn sq ft in Jan-Sep period, to cross 80 mn sq ft in 2024
It further noted that rental recovery in the Indian office market, albeit relatively slower than the demand recovery trajectory has finally been fully complete, thus forming an elongated โU-shapedโ pattern.
โAlthough the rental growth will vary across cities, annual increase in average quoted rentals at the end of 2024 is likely to be higher for certain cities like Delhi NCR and Pune as compared to other markets. Moreover, as demand scale-up in Indian commercial real estate solidifies, notwithstanding unforeseen events, annual space take up to the tune of 60 million sq ft is likely to be the new norm in the medium-termโ, said Arpit Mehrotra, Managing Director, Office services, India, Colliers.
Core micro markets outperform city-level appreciation
As per the report, select core micro markets across the top six cities have witnessed up to 25% rental growth during the 2019-2024 period. These micro markets have seen high demand across occupier segments, thus witnessing higher rental growth compared to 2-8% city-level appreciation during the same period, the report said.
Core micro markets in Delhi NCR such as Golf Course Extension Road, Noida Expressway and Cyber City have witnessed up to 25% rise in rentals during the last five years. Meanwhile high activity micro markets of Bengaluru such as Outer Ring Road (ORR) and Whitefield have witnessed a surge of 5-10% as compared to the 2% city-level rental growth during 2019-2024 period.
Also Read: Office leasing up 31% annually to 17.3 mn sq ft across top six cities in Q3 2024; Bengaluru and Hyderabad drive demand
Similarly, office rentals in other core micro markets such as OMR Zone 1 in Chennai and Goregaon/JVLR and BKC in Mumbai too have surged by 10-20% from pre-pandemic levels, while average rental growth in respective cities has been comparatively lesser at 5-6%.
Core micro markets are typically located in central business district and secondary business district areas of respective cities. The higher rental growth is reflective of occupiersโ preference for Grade A developments in localities that enjoy superior connectivity and are located in proximity of residential catchment areas.
Demand breaches 250 million square feet mark in five years
According to data cited in the report, the six major office markets in the country have witnessed a cumulative Grade A office space demand of 264 million squre feet since 2019. Despite the demand blips in pandemic affected years, consecutive record-breaking leasing activity has helped in keeping the growth momentum intact, the report said.
At an aggregate level, supply infusion has largely followed demand revival and is evident from the cumulative demand-supply ratio of 1.1 during 2019-2024, the report noted.
However, a city-level analysis of demand-supply contours highlighted interesting aspects. Mumbai, with a demand-supply ratio of 2.1, has witnessed a drop in vacancy levels since 2019, as demand has outpaced supply notably.
Also Read: Bengaluru to dominate India’s commercial real estate market with 330-340 mn sq feet office stock by 2030: Report
Similarly, in Delhi-NCR, with demand exceeding supply on a consistent basis, vacancy levels have dropped from around 25% a few years ago to about 20% presently. Hyderabad, on the contrary, has traditionally been a high-supply market and this has driven vacancy levels upwards constantly with current vacancy levels in the city around 25%, per the report.
โSince 2019, cumulative demand and supply across the six major office markets of the country have been recorded at 264 and 234 million sq ft respectively. With overall demand and supply mirroring each other, vacancy levels are anticipated to be rangebound across most cities. Average office rentals meanwhile can further firm up and witness up-to 10% annual growth across key cities in 2024โ, said Vimal Nadar, Senior Director and Head of Research, Colliers India.
