Southern cities dominate office market in FY21

The key southern office markets India have overtaken other regions in office leasing in terms of new supply, net absorption, and even rental growth.

Among the top seven cities, Bengaluru, Hyderabad, and Chennai saw their combined share of office leasing increase to 66% in 2020-21, compared to 47% in 2017-18, according to Anarock Property Consultants.

The net office absorption in 2020-21 in the top cities was 21.32 million sq. ft and these three southern cities absorbed roughly 14.06 million sq. ft. The Mumbai Metropolitan Region (MMR) and Pune absorbed 4.56 million sq. ft (21%) and the National Capital Region (NCR) took up 2.3 million sq. ft (11%).

In 2017-19, 31.15 million sq. ft of office space was leased in the top seven cities. Of this, cities in the southern region accounted for 47% net absorption, the western region 33%, and the northern region 17%.

In terms of new office supply too, Bengaluru, Chennai, and Hyderabad have continued to ramp up their share from 40% in FY18 to nearly 63% 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% share, with about 25.55 million sq. ft. The office supply share of the main western markets shrank to 19% in FY21 from 40% in FY18.

“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(information technology)/ITeS (IT-enabled services) 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 here,” said Anuj Puri, chairman, Anarock Group.

Between FY18 and FY21, office rentals in each of the southern cities also showed double-digit growth. In this period, office rentals in NCR remained more or less stagnant, while MMR and Pune saw just 2% and 8% rental growth respectively.