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Office buzz gets louder in Bengaluru, Chennai, Hyderabad with double-digit rise in rentals

South Indian cities of Bangalore, Chennai and Hyderabad dominated the domestic office space leasing market with rentals appreciating in double digits between FY18 and FY21, while their peers in west and north India — Mumbai and Delhi — saw office rentals remaining largely flat.

As per Anarock Property Consultants, between FY18 and FY21, office rentals in each of these southern cities have shown double-digit growth. In this period, office rentals in NCR remained stagnant, while Mumbai Metropolitan Region (MMR) and Pune saw a mere 2% and 8% rental growth, respectively.

Average monthly office rentals in Bengaluru rose by 15% to Rs 77 per sq ft in FY21 compared to Rs 67 per sq ft in FY18. Similarly, rentals in Chennai rose from Rs 54 per sq ft in FY18 to Rs 60 in FY21, growing at 11%. Average rentals in Hyderabad grew by 12% from Rs 51 per sq ft in FY18 to nearly Rs 57 in FY21.

The MMR witnessed just 2% growth in average office rentals between FY18 and FY21 — from Rs 123 per sq ft per month in FY18 to Rs 125 in FY21. Delhi NCR remained flat at Rs 78 per sq ft in both years.

“IT-ITeS is largely driving office demand in the country since the past few years. Almost 48% of the net office absorption of 21.32 million sq ft (MSF) in FY21 was by the IT-ITeS sectors alone. And these IT companies largely prefer to expand in IT-dominated cities that include Bangalore, Chennai and Hyderabad which have ample talent pool and resources,” Anarock chairman Anuj Puri said.

Another factor is the already high prevailing rentals in MMR, leading to less scope for growth, Puri said, adding, “Moreover, what we also saw in both MMR and NCR office markets in last few years was that due to high prevailing rentals in CBD areas, several companies preferred to move to the SBDs or even the PBDs (peripheral business districts).”

Resultantly, prices in the CBD areas remained more or less the same. In contrast, in the southern markets many large IT parks came up in the SBD areas only, causing less pressure on the CBDs, he pointed out.

The main southern office market has also overtaken other regions in terms of net absorption. Among the top seven cities, Bangalore, Hyderabad and Chennai saw their share of total office leasing increase to 66% in FY21 (against 47% in FY18).

The net office absorption in FY21 in the top cities was 21.32 MSF, and these three southern cities absorbed around 14.06 MSF. MMR and Pune absorbed 4.56 MSF (21%) and NCR 2.3 MSF (a mere 11% share.) In FY18, 31.15 MSF of office space were leased in the top seven cities. Of this net absorption, the southern cities collectively accounted for 47%, the western region 33% and the northern region 17%.


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