Metro City Office Spaces: Rent Rise Amidst Growing Demand
Office spaces in metro cities are witnessing a significant rent hike, with a 5.1% increase in Q4 of FY24, driven by demand and supply parity.
Office SpacesMetro CitiesRent HikeDemand And Supply ParityJm FinancialReal EstateJun 22, 2024
The top seven cities that have witnessed a significant rise in office space rentals are Bengaluru, Hyderabad, Pune, Mumbai Metropolitan Region (MMR), Delhi NCR, Kolkata, and Chennai. While Bengaluru's rentals remained stable on a quarterly basis, other cities saw a notable increase. In MMR, city-wide market rentals increased by 6.0% year-over-year (YoY) and 4.3% quarter-over-quarter (QoQ). Delhi NCR witnessed a 3.8% YoY and 0.6% QoQ incline, while Pune's rentals remained stable.
Demand for office spaces in these cities is on the rise, with a significant increase in leasing activities. In Bengaluru, net absorption increased to 6.7 million square feet (msf) in Q4 FY24, led by significant activity from global capability centers. MMR also experienced an incline, with a 57% YoY increase, although it declined by 8% QoQ in Q4 FY24.
Delhi NCR's gross leasing was flat YoY, but declined by 21% QoQ in Q4 FY24. Interestingly, fresh leases in Delhi NCR accounted for a majority of the demand, holding a share of 70%. The demand for office spaces in Kolkata during the same quarter was subdued, with a 66% YoY and 52% QoQ decline.
Hyderabad and Chennai also witnessed significant growth, with gross leasing standing at 2.5msf and 1.7msf, respectively, in Q4 FY24. Chennai's Suburban South micro-market area led the city in office leasing space, with a 43% share.
Furthermore, post-Covid-19, the office sector was impacted by higher exits, largely led by space rationalization carried out by IT/ITeS companies. Net leasing for the office REITs had turned positive in Q4 FY24, and REIT managers believe that the buoyancy in demand will continue into FY25, aiming to achieve portfolio-wide occupancies of over 90% by end-FY25.
When it comes to supply, Bengaluru added Grade-A office inventory in Q4 FY24, lower than the record completions seen in the previous quarter. Hyderabad added 2.9msf of new supply, a decrease of 36% QoQ, while FY24 supply stood at 14.7msf. Mumbai, Delhi NCR, Pune, and Chennai also witnessed new supply additions, with most of the upcoming supply concentrated in specific micro-markets.
JM Financial is a leading financial services company in India, providing a range of services, including investment banking, equity research, and wealth management.
Information The Indian real estate market has been witnessing a significant shift towards organized and institutional investments, driven by the growing demand for quality office spaces.
Keywords office spaces, metro cities, rent hike, demand and supply parity, JM Financial, real estate, India.
FAQs
Q What is the primary reason behind the rent hike in metro city office spaces?
A The primary reason is the parity in demand and supply.
Q Which cities have witnessed a significant rise in office space rentals?
A Bengaluru, Hyderabad, Pune, Mumbai Metropolitan Region (MMR), Delhi NCR, Kolkata, and Chennai.
Q What is the forecast for office space demand in FY25?
A REIT managers believe that the buoyancy in demand will continue into FY25, aiming to achieve portfolio-wide occupancies of over 90% by end-FY25.
Q What is the impact of Covid-19 on the office sector?
A The office sector was impacted by higher exits, largely led by space rationalization carried out by IT/ITeS companies.
Q Which micro-market area led Chennai in office leasing space?
A Chennai's Suburban South micro-market area led the city in office leasing space, with a 43% share.
Frequently Asked Questions
What is the primary reason behind the rent hike in metro city office spaces?
The primary reason is the parity in demand and supply.
Which cities have witnessed a significant rise in office space rentals?
Bengaluru, Hyderabad, Pune, Mumbai Metropolitan Region (MMR), Delhi NCR, Kolkata, and Chennai.
What is the forecast for office space demand in FY25?
REIT managers believe that the buoyancy in demand will continue into FY25, aiming to achieve portfolio-wide occupancies of over 90% by end-FY25.
What is the impact of Covid-19 on the office sector?
The office sector was impacted by higher exits, largely led by space rationalization carried out by IT/ITeS companies.
Which micro-market area led Chennai in office leasing space?
Chennai's Suburban South micro-market area led the city in office leasing space, with a 43% share.
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