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The first half of fiscal year 2024 remained lacklustre for commercial office space activity across the top seven cities, with both net absorption and new completions remaining stagnant compared to same period last year. New office supply across the top 7 cities rose by a meagre 5% in H1 FY2024 against H1 FY23, and net office absorption saw a marginal yearly decline of 1% in this period, real estate research firm Anarock said in a report.

Prashant Thakur, Regional Director & Head – Research, Anarock Group, said ” the rise is due to increased construction and input costs. Data indicates that Grade A office rental values averaged at INR 83 per sq. ft. per month across the top 7 cities in H1 FY2024, while in the corresponding period in FY23, it was approx. INR 77.5 per sq. ft,” he said.

Chennai witnessed the highest 10% yearly jump in average monthly office rental values – from Rs 62 per sq. ft. in H1 FY2024 to approximately Rs 68 per sq. ft. in H1 FY2023. Hyderabad came next with an 8% yearly growth. The average monthly office rental value in the city rose from Rs 61 per sq. ft. in H1 FY2023 to Rs 66 per sq. ft. in H1 FY 2024.

Bengaluru, Pune, and Kolkata each saw 7% annual growth in office rental values in this period, while MMR and NCR registered a 5% jump each.

Kolkata saw a 7% yearly rise in avg. monthly office rental value in H1 FY24, reaching Rs 58 per sq. ft. compared to 54 per sq. ft. in H1 FY2023. The city currently is the most economical office rental values among the top 7 cities.

MMR is the most expensive at 136 per sq. ft. in H1 FY2024.

In NCR, the avg. office rental value stood at Rs 85 per sq. ft. in H1 FY2024.

“It was widely anticipated that commercial office space demand in India will see a downturn amid layoffs by several large corporates worldwide, and shrinking business volumes,” says Thakur.

In terms of sector-wise net absorption, IT/ITeS continues to dominate leasing transactions in H1 FY2024. However, the sector’s overall share in leasing has been on a decline year-on-year. In H1 FY2020, the share of IT/ITeS sector in overall leasing was a whopping 46%, while in H1 FY2024, its share dropped to just 29%.

Consequently, the share of coworking spaces has been on the rise – from 11% in H1 FY2020 to 24% in H1FY2024. This denotes a shift in the leasing trend by many corporates of various sizes who now see flexible workspaces as a viable and more cost-effective option.

Amid increased office space completions, vacancy levels across most top cities rose marginally except in NCR, MMR, and Kolkata. The average vacancy rate of Grade-A offices in the top 7 cities collectively increased by 0.95% – from 15.9% in H1 FY23 to 16.85% in H1 FY24.

An analysis of annual variations in average vacancy rates across the top 7 office markets shows that Pune currently has the lowest at 8.3%. NCR, MMR, and Kolkata witnessed a Y-o-Y reduction in vacancy levels with 0.8%, 0.45%, and 0.1%, respectively. Chennai maintained equilibrium in its vacancy rates throughout the period.

In Pune, Bengaluru, and Hyderabad, office space vacancy levels increased by 0.5%, 0.5%, and 2.6%, respectively over the course of the financial year.