Commercial real estate rents surge 20% in Bengaluru, Pune, NCR, and Mumbai

A new report by Colliers reveals that occupiers in the Asia Pacific region are prepared to pay higher rentals for superior-quality offices, despite a cost-conscious mindset.

Key highlights office markets report for Q1 2024

— Superior quality new office spaces command up to 20% higher rental premiums over average quoted rentals in select premium micro markets.

— Global Capability Centers (GCCs) drive India's office space demand, holding a 37% share in overall leasing activity for Q1 2024.

— Bengaluru and Hyderabad collectively drove office market activity. They accounted for around half of leasing and three-fourths of the supply in Q1 2024.

—  Amidst robust demand-supply equilibrium, vacancy levels remained stable.

— Rental rates surged by up to 8% year-on-year across key markets.

—  Global firms captured a significant 61% share.

Rental increases in India's top office markets

India's leading office markets have experienced a 4-8% annual increase in rentals. This growth is driven by strong demand and an influx of high-end, quality office supply, as noted in Colliers’ 'Expert Insights | Asia Pacific Office Markets April 2024' report. After a decline during the pandemic due to low demand, occupier exits, and remote work trends, rentals have surged in 2024, surpassing pre-pandemic levels.

Reasons for higher willingness to pay

Occupiers seek locations that facilitate talent acquisition. India's strong office market performance is attributed to robust economic growth and renewed occupier confidence. Specific high-performing markets in the top six cities have seen up to 20% annual rental growth.

"In response to evolving market dynamics, office occupiers in India are revolutionising their cost optimisation strategies by embracing the hub-and-spoke model, expanding flex space portfolios, and leveraging technology. Suburban and peripheral areas, offering affordability, are witnessing heightened demand, indicating a preference for sub-dollar or near-dollar markets,” said Arpit Mehrotra, Managing Director, Office Services, India, Colliers.

Examples of high-performing markets

— MG Road, Delhi NCR: 18.2% annual growth

— SBD1, Bengaluru: 15.5% annual growth

— Pallavaram Thoraipakkam Road (PTR), Chennai: 10.9% annual growth

City-wise snapshot

Bengaluru
 

— Outer Ring Road led leasing; North Bengaluru led supply in Q1 2024, each accounting for over 50%.

— Engineering & Manufacturing sector dominated leasing activity with a 39% share, driven by large transactions.

— Rentals remained stable, offering occupiers numerous options across the city.

Chennai
 

— Office leasing moderated to 1.5 million sq ft in Q1 2024; 47% of demand from OMR Zone 1 and MPR micro-markets.

— Engineering & Manufacturing sector saw a 28% YoY rise in leasing activity, surpassing Technology sector.

— Vacancy levels expected to remain stable with strong demand and supply dynamics.

Delhi-NCR
 

— Golf Course Extension Road in Gurugram had the highest space take-up of 0.7 million sq ft, 28% of total leasing.

— Technology firms dominated leasing with nearly 3X growth in gross absorption compared to last year.

— Vacancy decreased and rentals increased by about 9% in Q1 2024 due to high demand and limited new supply.

Hyderabad
 

— Space uptake increased 2.2x in Q1 2024 compared to Q1 2023, driven by Healthcare and Technology sectors.

— Hi-tec City accounted for 80% of total office leasing during the quarter.

— Vacancy levels remained stable with strong demand and supply performance.

Mumbai
 

— Navi Mumbai and Goregaon/Malad were the most active micro-markets, together accounting for about half of gross absorption in Q1 2024.

— BFSI players dominated demand with a 39% share; Flex space accounted for 15%, surpassing the Technology sector.

— Vacancy levels dropped 460 basis points YoY due to limited new supply and healthy demand.

Pune
 

— Technology sector saw a notable 3.3X YoY rise, marking a significant comeback.

— Viman Nagar had the highest leasing at 25%, led by BFSI, Technology, and Engineering & Manufacturing occupiers.

— Most markets experienced 3-5% rental growth YoY.

— Vacancy levels increased due to lower space uptake and higher supply infusion.

Premium rentals for superior quality offices

New office supplies with superior construction and high-end amenities typically command rents up to 20% higher than average rentals across select premium micro markets.

Flex spaces and future trends

With 8.7 million square feet of leasing in 2023, the flex space segment has expanded significantly. According to Mehrotra, flex spaces are expected to maintain this momentum in 2024, constituting 15-20% of total office leasing across the top six cities. This underscores occupiers' pursuit of agile, cost-effective workspace solutions.

GCCs and their impact

The Asia Pacific region benefits from more cost-conscious occupiers globally, particularly from GCCs in markets like India. GCCs accounted for 37% of total office leasing in the March quarter, with projections suggesting they will lease 45-50 million square feet in the next two years. This growth is driven by diverse sectors and a preference for green-certified Grade A office spaces, particularly in sub and near dollar micro markets.

What are GCCs?

Global Capability Centers are offshore units established by multinational corporations to perform a range of strategic functions. They leverage specialised talent, cost arbitrage, and operational efficiencies in various locations worldwide.