Hyderabad leads in new Office Space influx, Bengaluru sees mixed performance in FY23

The commercial office space market in the top 7 cities had a mixed performance in FY 2023, with the first half outperforming the second half. Recent data from ANAROCK Research reveals that Hyderabad surpassed Bengaluru with the highest influx of new office supply in FY 23.

In FY 23, Hyderabad received approximately 14.94 million square feet of new office space, accounting for a 31% share of the total supply in the top 7 cities. This represented a 27% increase compared to FY 2022. On the other hand, Bengaluru saw approximately 12.66 million square feet of office supply completions, comprising a 26% share and a 13% decrease from the previous fiscal year.

Following closely, NCR completed approximately 8.82 million square feet of office space in FY 23, representing a significant 52% annual increase. In contrast, MMR witnessed a mere 4.18 million square feet of new office supply, a decline of 46% from the previous fiscal year.

Bengaluru led in terms of net office absorption, with approximately 9.88 million square feet, followed by NCR and Hyderabad with approximately 6.89 million square feet and 6.88 million square feet, respectively.

Prashant Thakur, Sr. Director & Head of Research at ANAROCK Group, commented, “The office real estate market demonstrated robust growth in the first half of FY 2023, but this was short-lived. The global economic slowdown cast a shadow on the Indian office market in the second half, and we anticipate this trend to continue in the near future. Layoffs by corporates and global recessionary trends are likely to hinder office space growth in India.”

Thakur also noted, “While the Indian economy remains stronger than many developed nations, we need to closely monitor the future. IT/ITeS companies have scaled down their operations and are not looking to expand. Office markets across the top 7 cities are expected to remain subdued throughout the rest of 2023 and early 2024. We anticipate some stability in the second half of 2024, depending on the global economic situation.”

Despite layoffs and limited expansion, the average vacancy rate for Grade A office spaces in the top 7 cities experienced a slight YoY decline of 0.1% in FY 23, dropping from 16% to 15.9%. Pune had the lowest vacancy rate at 8.3%, followed by Chennai at 10.27%. Bengaluru registered a vacancy rate of 11.15%, making it one of the cities with the lowest office space vacancy among the top 7 cities in the current fiscal year.

Average office rentals in the top 7 markets witnessed a 4% annual increase in FY 23. The average rentals for Grade A office spaces across India reached INR 79/sq. ft./month, reflecting a 4% growth over FY 22. Input cost escalation played a significant role in this upward trend.

Bengaluru followed at INR 85/sq. ft./month, and NCR came third with an average of INR 82/sq. ft./month.

Pune and Bengaluru led the way with the highest YoY increase in average office rental values, with growth rates of 10% and 9% respectively. Hyderabad followedCertainly! Here’s the remaining part of the news:

next, experiencing a YoY gain of 7%. Both MMR and NCR saw a 5% increase each in average office rentals. Kolkata witnessed a 4% rise, while Chennai saw a steady 3% growth in average office rentals compared to the preceding financial year.

Despite the challenges faced in the commercial office space market, there is a silver lining in the form of a drop in vacancy levels. Pune stands out as the only city with a vacancy rate 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 them the cities with the lowest office space vacancy among the top 7 cities in the current fiscal year.

Looking ahead, the commercial office market in India faces uncertainties due to the global economic situation. However, despite the challenges, the Indian economy remains relatively stronger compared to developed nations. The office market may witness subdued growth until the first half of 2024, with IT/ITeS companies scaling down operations and a lack of expansion plans. Stability is expected to emerge in the second half of 2024, contingent on the trajectory of the global economy.

FY23 presented a mixed performance for the commercial office space market in the top 7 cities, with Hyderabad leading the way in new office supply influx. The market faced challenges in the second half of the fiscal year, and the vacancy rate saw a slight decline. Nonetheless, average office rentals experienced a moderate increase, influenced by rising input costs. The future of the office market in India remains closely tied to the global economic landscape.