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Average rents across all the top six office markets have breached pre-pandemic levels for the first time in 2024
Average rents across all the top six office markets have breached pre-pandemic levels for the first time in 2024

October 28, 2024

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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.

 

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) 

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]

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


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Sukanya Dasgupta, Head Marketing and Communications - sukanya.dasgupta@colliers.com

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