· Demand revival drives rental recovery, average office rents surpass pre-pandemic levels in 2024
· Core micro markets saw higher growth; up-to 25% increase as compared to pre-pandemic era
· Since 2019, cumulative demand & supply have mirrored each other, keeping vacancy levels rangebound
Bengaluru, 23 October 2024: In the post-pandemic era, demand recovery in the office market has been swift, following a steep ‘V-shaped’ recovery trajectory. After subdued demand in 2020 & 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. With strong, consistent demand, average rentals have also surpassed the pre-pandemic levels (2019) across all the six major office markets for the first time in 2024. The rental recovery in the Indian office market, albeit relatively slower than the demand recovery trajectory has finally been fully complete, thus forming an elongated ‘U-shaped’ pattern.
Rental recovery pace varies across cities, surge highest in Delhi NCR and Pune
All throughout this recovery trail, certain cities such as Hyderabad and Pune achieved pre-pandemic rental levels in 2022 itself. While Bengaluru and Chennai breached 2019 rental levels in 2023, Delhi NCR and Mumbai completed the recovery cycle finally in 2024. Although Delhi NCR was amongst the last cities to breach pre-pandemic levels, the rental growth (2024 compared to 2019) has been the highest in Delhi NCR. In fact, Delhi NCR and Pune saw the highest rise in average rentals at about 8% each during the 2019-2024 period followed by Mumbai and Chennai with about 5-6% rise in the same period.
City-wise Weighted Average Quoted (WAQ) rental trends (in INR/sq ft)
City | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | Rental Change 2024 vs 2019 |
Bengaluru | 94.5 | 95.2 | 90.6 | 90.6 | 94.7 | 96.7 | 2.3% |
Chennai | 74.0 | 74.0 | 74.1 | 73.6 | 74.5 | 77.8 | 5.1% |
Delhi-NCR | 97.8 | 93.2 | 90.5 | 93.2 | 96.8 | 105.9 | 8.3% |
Hyderabad | 73.4 | 73.4 | 73.4 | 73.7 | 75.2 | 76.7 | 4.5% |
Mumbai | 143.3 | 138.5 | 137.3 | 140.5 | 142.5 | 151.6 | 5.8% |
Pune | 75.8 | 74.7 | 74.2 | 76.4 | 77.4 | 81.6 | 7.7% |
Pan India | 99.5 | 97.1 | 94.8 | 94.9 | 96.5 | 101.3 | 1.8% |
Source: Colliers
Note: Weighted Average Quoted (WAQ) Rents are in INR per square feet per month for warm shell offices and do not include Common Area Maintenance (CAM) or taxes. | For 2024, data is as of Q3 2024 end h
“Average rentals across all six major markets have breached pre-pandemic levels for the first time in 2024. Although 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-term”, says Arpit Mehrotra, Managing Director, Office services, India, Colliers.
Rentals in core micro markets have outperformed city-level appreciation significantly
Interestingly, 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. 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. 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. Similarly, office rentals in other core micro markets such as OMR Zone 1 in Chennai and Goregaon/JVLR & 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 CBD and SBD areas of respective cities. The higher rental growth is reflective of occupiers’ preference for Grade A developments in localities that enjoy superior connectivity and are located in proximity of residential catchment areas.
Rental trend in select core micro markets[1]
City | Core micro market(s) | Core micro market(s) rental growth (2024 vs 2019) | Overall city rental growth (2024 vs 2019) |
Bengaluru | ORR, Whitefield | 5-10% | 2% |
Chennai | OMR Zone 1 | 15-20% | 5% |
Delhi NCR | Golf Course Extension Road, Noida Expressway, Cyber City | 5-25% | 8% |
Hyderabad | SBD | 5-10% | 5% |
Mumbai | BKC, Goregaon/JVLR | 10-15% | 6% |
Pune | CBD, Kharadi | 5-10% | 8% |
Source: Colliers
Note: 2024 rentals refer to WAQR as of Q3 2024 end
[1] Micro market definition: Outer Ring Road (ORR) in Bengaluru includes – the stretch from Sarjapur JN to Hebbal; Old Mahabalipuram Road Zone 1 includes Pre-toll area from Madhya Kailash to Perungudi; Secondary Business District (SBD) in Hyderabad includes - Madhapur, Raidurg, Hitech city and Kondapur; Bandra Kurla Complex (BKC) in Mumbai includes BKC, Bandra East and Bandra West; Goregaon/JVLR in Mumbai- Goregaon East, Goregaon West, Jogeshwari East, Jogeshwari West, Santacruz West, Khar West; Central Business District (CBD) in Pune includes - Camp, FC Road, JM Road, Koregaon Park, Kalyani Nagar, Shivaji Nagar, Raja Bahadur Mills Road, Senapati Bapat Road, Wakdewadi, Yerwada;
Cumulative office space demand in last 5 years has comfortably breached 250 msf
With continued strong momentum in the market, the six major office markets have already witnessed a cumulative Grade A office space demand of 264 million sq ft since 2019. Despite the demand blips in pandemic affected years, consecutive record-breaking leasing activity has helped in keeping the growth momentum intact. 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. However, a city-level analysis of demand-supply contours throws interesting aspects. Mumbai, with a demand-supply ratio of 2.1, has witnessed a significant drop in vacancy levels since 2019, as demand has outpaced supply significantly. 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% currently. Hyderabad, on the contrary, has traditionally been a high-supply market and this has driven vacancy levels upwards constantly; current vacancy levels in the city are around 25%.
Demand, supply and vacancy trend
City | Cumulative demand (2019-2024) in msf | Cumulative supply (2019-2024) in msf | Cumulative Demand Supply Ratio | Vacancy % (As of Sep 2024) | Change in vacancy (bps) 2024 vs 2019 |
Bengaluru | 79.1 | 70.3 | 1.1 | 16.9% | 250 to 500 bps increase |
Chennai | 29.8 | 17.6 | 1.7 | 15.4% | 250 to 500 bps decrease |
Delhi NCR | 47.4 | 37.1 | 1.3 | 20.4% | 0 - 250 bps decrease |
Hyderabad | 42.9 | 65.8 | 0.7 | 24.6% | > 1,000 bps increase |
Mumbai | 38.0 | 18.5 | 2.1 | 10.7% | 500 to 1,000 bps decrease |
Pune | 27.2 | 24.3 | 1.1 | 14.1% | 0 to 250 bps increase |
Source: Colliers
Note: In commercial real estate parlance, Demand Supply Ratio (DSR) is the ratio of demand to supply during a particular period. While a DSR of more than 1 is indicative of demand outpacing supply in a particular period; a DSR of less than 1 is indicative of supply outpacing demand in a particular period. A DSR of 1, meanwhile indicates harmony between demand and supply in the particular market for the period in consideration| Data pertains to Grade A buildings only | 2024 data is till Q3 2024 | bps – basis points
“After the initial years of the pandemic, occupiers and developers regained confidence in the office market of the country quite fast. Both demand and new supply in the last 5 years, especially in the post-pandemic era, have been quite impressive. Since 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 2024”, says Vimal Nadar, Senior Director & Head of Research, Colliers India.
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