Office rental value rises by 8 percent in Hyderabad in FY-24

HYDERABAD: Hyderabad experienced the second highest average office rental value in fiscal year 2024, with an 8 percent yearly growth, according to ANAROCK research.

Notably, Chennai saw the greatest yearly increase in average monthly office rental values, rising from Rs. 62 per sq. ft. in H1 FY2024 to around Rs. 68 per sq. ft. in H1 FY2023. Hyderabad came in second, with an annual growth rate of 8 percent.

The city's average monthly office rental value increased from Rs. 61 per square ft. in H1 FY2023 to approximately Rs. 66 per sq. ft. in H1 FY 2024.

Bengaluru, Pune, and Kolkata experienced a 7 percent annual growth in office rental values during this period, while Mumbai Metropolitan Region (MMR) and NCR experienced a 5 percent jump each.

The first half of fiscal year 2024 saw a drop in commercial office space activity across the top seven cities, with both net absorption and new completions remaining largely flat compared to the same period the previous year. New office supplies in the top seven cities increased by a meagre 5 percent in H1 FY2024 compared to H1 FY23, while net office absorption fell by 1 percent year on year.

Prashant Thakur, Regional Director & Head of Research, ANAROCK Group, said, "Interestingly, average rental values across the top 7 cities witnessed a 7% 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 at 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."

“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. 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% yearly jump in the period and net absorption dropped by just 1 percent, " said Thakur.

IT/ITeS continues to dominate leasing transactions in H1 FY2024 in terms of sector net absorption. However, the sector's overall leasing share has been declining year on year. In H1 FY2020, the IT/ITeS sector accounted for 46 percent of total leasing, but by H1 FY2024, it had dropped to 29 percent.

Consequently, the share of coworking spaces has increased from 11 percent in H1 FY2020 to 24 percent in H1 FY2024. This represents a shift in the leasing trend among many corporates of various sizes, who now see flexible workspaces as a viable and more cost-effective option.

Vacancy rates

Despite increased office space completions, vacancy levels in most major cities rose marginally, with the exception of NCR, MMR, and Kolkata. The average vacancy rate of Grade-A offices in the top seven cities increased by 0.95 percent, rising from 15.9 percent in the first half of fiscal year 23 to 16.85 percent in the first half of fiscal year 24.

According to an analysis of annual variations in average vacancy rates in the top seven office markets, Pune currently has the lowest at 8.3 percent. Vacancy levels fell by 0.8 percent, 0.45 percent, and 0.1 percent year on year in the NCR, MMR, and Kolkata, respectively. Chennai maintained equilibrium in its vacancy rates throughout the period.

Over the course of the fiscal year, office space vacancy levels in Pune, Bengaluru, and Hyderabad increased by 0.5 percent, 0.5 percent, and 2.6 percent, respectively.

Outlook

While Indian commercial office space demand will undoubtedly face short-term challenges in the current global environment, the medium- to long-term outlook remains positive, especially given that Grade A offices are still available at sub-dollar rents. The office market may regain stability in the second half of 2024.

Other Insights

Hyderabad has surpassed Bengaluru with the highest influx of new office supply in H1 FY24

Bengaluru continues to lead in net office absorption among top seven cities in H1 FY24

The office market share of coworking spaces increased in H1 FY24, with Bengaluru’s share increasing from 23 percent in H1 FY23 to a remarkable 32 percent in H1 FY 2024

Small-ticket leasing (below 0.05 Mn Sf) dominates office leasing activity with a 53 percent share across the top seven cities