Office rental markets across major Indian cities like Delhi, Mumbai, and Bengaluru have shown remarkable stability, particularly over the last quarter. According to recent reports, prime office rents have not just leveled off but have also seen slight year-on-year increases due to strong demand from businesses and limited new rental supply.
During the July to September period, 2024, the prime office rents remained unchanged overall, with Mumbai witnessing a 5% increase and Bengaluru experiencing a 3% rise. This upward trend is attributed to the high occupancy demand driven by companies operating within Global Capability Centres (GCCs) and those focused on India-specific business scenarios. The report from Knight Frank indicates positive growth, with transaction volumes hitting record levels across these three metropolitan areas.
Despite global economic uncertainties, the rental performance across these key cities reflects optimism about India's economic progress. Factors contributing to this stability include the rich talent pool available, favorable government regulations for businesses, and the continuous expansion of India's consumer markets.
Currently, Delhi-NCR ranks as the sixth most expensive office rental market within the Asia-Pacific region. The prime office space there is fetching rates of around INR 340 per square foot per month. Remarkably, this position puts Delhi significantly above other markets, making it one of the top-tier locations for businesses seeking office space.
Interestingly, as businesses adapt to shifting patterns of work post-pandemic, there’s been increasing interest from organizations wanting to secure quality office spaces. The strong performance of the Delhi-NCR market is complemented by Mumbai's rental gains, where prime office rents hover around INR 317 per square foot, placing it as the eighth-most expensive market.
Bengaluru, often hailed as the technology and startup hub of India, has proven to be one of the more affordable prime office markets. Rents here are documented at INR 138 per square foot but exhibit stability, staying unchanged for the future business outlook. Notably, during Q3 2024, Bengaluru saw transaction volumes surge by 158% year-on-year - the highest growth rate among the three major cities. GCCs have been pivotal, reportedly accounting for 62% of the leased space.
The stability of office rents is echoed across 16 of the 23 monitored cities, where rents have either stabilized or experienced increases compared to the previous year. This positive note suggests businesses are preparing for future growth with renewed confidence, which is encouraging for landlords and the real estate market alike.
Analysts anticipate the upcoming year will continue to favor tenants, primarily due to abundant new office supply coming to market. About 12 million square meters of office space is expected to hit the market throughout 2024. Although projections suggest the supply will decrease by one-fifth for 2025, during this transitional period, landlords may need to be flexible to maintain occupancy rates.
Elsewhere, outside of India, cities such as Brisbane are also reporting substantial rental growth, underscoring the trends across the Asia-Pacific office market. Despite facing headwinds such as inflation and market fluctuations, the efforts to keep vacancy rates stable across the region are proving to be successful.
For Delhi-NCR, Mumbai, and Bengaluru, the forthcoming year holds promise. The structures of these markets have adapted to new economic realities, ensuring office rent stability and enhancing the cities as attractive destinations for businesses seeking prime office space. The blend of strong demand, limited supply, and economic resilience positions these markets for continued success.
Overall, as global businesses express their determination to establish or expand their footprints in India, the trend of stable office rents may well continue. With widespread recognition of business-friendly policies and the country's vast consumer base, Indian cities are increasingly becoming favorable options for organizations, particularly those within the burgeoning tech and service sectors.
