Southern cities dominate India's office space: Anarock report

New Delhi: Three major cities in south India, Bengaluru, Hyderabad and Chennaidominate India's office market with the contribution of 66 per cent of the total demand for office space during the last financial year 2020-21, according to Anarock report.

The consultant noted that the main southern office market has overtaken other regions in terms of new supply, net absorption, and even rental growth. The net office absorption in FY21 in the top cities was 21.32 million sq. ft, of which these three southern cities absorbed about 14.06 million sq ft. Mumbai Metropolitan Region (MMR) and Pune absorbed 4.56 million sq ft (21 per cent) and NCR 2.3 million sq ft (a mere 11 per cent share).

During the financial year 2017-18, 31.15 million square feet of office space were leased in the top-7 cities. Of this net absorption, the southern cities collectively accounted for 47 per cent, the western region 33 per cent and the northern region 17 per cent.

Anarock Chairman Anuj Puri said, "The remarkable growth in the office market of these three southern cities when viewed against their western and northern counterparts is directly attributable to robust demand by the IT and ITeS sector, affordable rentals, and the exponential growth of start-ups locally over the past few years."

The manufacturing and industrial sectors are also driving demand in these three cities, he added. In terms of new office supply also, the southern cities have increased their share from 40 per cent in FY18 to nearly 63 per cent in FY21.

Of the total new office space completion of 40.25 million sq. ft in FY21 across the top-seven cities, the southern cities had a 63 per cent share (about 25.55 million sq. ft). The office supply share of the main western markets fell to just 19 per cent in FY21 from 40 per cent in FY18, the consultant said.

"Notably, between FY18 and FY21, office rentals in each of the southern cities have also shown double-digit growth," Anarock said. During the period under review, office rentals in NCR remained more or less stagnant, while MMR and Pune saw a mere 2 per cent and 8 per cent rental growth, respectively.

In Bengaluru, the average monthly office rentals increased by 15 per cent to Rs 77 from Rs 67 per sq ft in FY18. Rentals in Chennai have grown by 11 per cent to Rs 60 from Rs 54 per sq. ft in FY18.

"In Hyderabad, average monthly office rentals rose from Rs 51 per sq. ft in FY18 to nearly Rs 57 per sq. ft in FY21 (up 12 per cent)," Anarock said.