Indian Office Market Sees Strong Demand and Rental Growth Post-Pandemic: Colliers 

Bengaluru / October 23, 2024: The office market has experienced a strong ‘V-shaped’ recovery following the pandemic. After a decline in demand during 2020 and 2021, leasing activity rebounded significantly in 2022 and has continued to increase since then. Grade A office space uptake has reached new record highs each year at the national level. As a result of consistent demand, average rental rates have surpassed pre-pandemic levels in all six major office markets. While the rental recovery has been slower than the demand recovery, it has now fully completed, forming a gradual ‘U-shaped’ pattern, Colliers said in an analysis.

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, the analysis further said. 

“Average rentals across all six major markets have breached pre-pandemic levels for the first time in 2024. Although the rental growth will vary across cities, annual increase in average quoted rentals at the end of 2024 is likely to be higher for certain cities like Delhi NCR and Pune as compared to other markets. Moreover, as demand scale-up in Indian commercial real estate solidifies, notwithstanding unforeseen events, annual space take up to the tune of 60 million sq ft is likely to be the new norm in the medium-term”, said Arpit Mehrotra, Managing Director, Office services, India, Colliers.

Certain micro markets within the top six cities have experienced significant rental growth of up to 25% between 2019 and 2024. These areas have seen strong demand from various occupiers, leading to higher rental increases compared to the overall city-level appreciation during the same period. These core micro markets are typically located in central business districts (CBDs) and secondary business districts (SBDs). The higher rental growth reflects occupiers’ preference for high-quality office spaces in areas with excellent connectivity and proximity to residential areas, the analysis added.  

“After the initial years of the pandemic, occupiers and developers regained confidence in the office market of the country quite fast. Both demand and new supply in the last 5 years, especially in the post-pandemic era, have been quite impressive. Since 2019, cumulative demand and supply across the six major office markets of the country have been recorded at 264 and 234 million sq ft respectively. With overall demand and supply mirroring each other, vacancy levels are anticipated to be rangebound across most cities. Average office rentals meanwhile can further firm up and witness up-to 10% annual growth across key cities in 2024”, said Vimal Nadar, Senior Director & Head of Research, Colliers India. 

The six major office markets have experienced strong demand, totaling 264 million square feet of Grade A office space since 2019. Despite temporary disruptions during the pandemic, consistent leasing activity has maintained growth momentum. Overall, supply has generally kept pace with demand, resulting in a demand-supply ratio of 1.1 from 2019 to 2024. However, a city-by-city analysis reveals variations. Mumbai has seen a significant decrease in vacancy levels as demand has substantially outpaced supply, resulting in a demand-supply ratio of 2.1. In Delhi-NCR, consistent demand exceeding supply has led to a decline in vacancy rates from around 25% to 20%. In contrast, Hyderabad, historically a market with high supply, has experienced rising vacancy levels, currently reaching around 25%.

x