Top Indian Cities to Invest in Office

Investing in the Indian office market requires careful consideration and a deep understanding of key factors that drive growth and success. With several cities emerging as commercial hubs, it's essential to identify the most promising destinations for office market investments. In this article, I conducted a comprehensive analysis of the Indian office market, focusing on six prominent cities: Bengaluru, Hyderabad, Pune, Chennai, Mumbai, and Delhi. By examining vacancy rates, average rents, upcoming supply, quarterly absorption, and rental growth, my goal is to provide valuable insights that will guide investors in making informed decisions.

The Indian office market has witnessed significant transformations in recent years, driven by rapid urbanization, technological advancements, and a growing economy. As a result, cities across the country have emerged as bustling commercial centers, attracting businesses and investors alike. However, not all cities offer the same investment potential. By delving into key market indicators, we can uncover the cities that stand out in terms of vacancy rates, rental growth, absorption rates, and more.

Vacancy Rates (1):?

One of the crucial factors to consider when evaluating an office market is the vacancy rate. A low vacancy rate indicates a high demand for office spaces, which translates to a more favorable investment environment. Bengaluru and Pune lead the pack with the lowest vacancy rates, standing at an impressive 9.5% and 11% respectively. Chennai follows closely with a 14% vacancy rate. Mumbai and Hyderabad exhibit slightly higher vacancy rates, around 20.5%, while Delhi tops the list with a vacancy rate of 25.23%.

Average Rents (1)?:

Average rents play a significant role in determining the attractiveness of an office market. Chennai boasts the lowest average rents, around 58 per square foot, making it an appealing option for cost-conscious investors. Hyderabad and Delhi hover around 62, offering competitive rental rates. Pune follows closely with an average rent of 72, while Bengaluru stands at 82.7, showcasing its status as a thriving commercial hub. Mumbai commands the highest average rent at 117, reflecting its position as a prime business destination.

Supply (1) :?

Understanding the upcoming supply of office spaces is crucial for investors looking to enter or expand their presence in a particular market. Between 2023 and 2025, a significant supply of office spaces is planned or under construction across these cities, totaling 163 million square feet (msf). Hyderabad leads the way with 50 msf, followed by Bengaluru with 43 msf, representing 28% of the total supply. Delhi accounts for 22 msf (21%), while Mumbai, Pune, and Chennai have comparatively lower supplies at around 16 msf (10%).

Quarterly Absorption (2):?

Quarterly absorption rates provide insights into the demand for office spaces over time. Bengaluru takes the lead with the highest absorption rate, recording 3.73 msf in the last 10 quarters. Hyderabad and Mumbai follow closely with around 2.1 msf each, indicating a consistent demand for office spaces in these cities. Delhi showcases a quarterly absorption rate of 1.65 msf, while Pune and Chennai register around 0.95 msf, indicating a moderate demand in these markets.

Total Stock (1):?

Assessing the total stock of office spaces in a city gives a broader perspective of the market's scale and maturity. Bengaluru holds the largest office stock, standing at a staggering 174 million square feet (msf). Delhi follows with 134 msf, while Mumbai boasts a total stock of 108 msf. Hyderabad, Pune, and Chennai have total stocks of 90 msf, 64 msf, and 60 msf, respectively, showcasing the diverse market sizes and opportunities available in these cities.

Rental Growth (3):?

Rental growth is a key metric that indicates the potential for value appreciation in office properties. Bengaluru leads the pack with the highest rental growth from FY 18 to FY 2023, boasting an impressive 25.40% increase. Hyderabad follows closely with a rental growth of 19.60%, indicating a strong market performance. Pune showcases a rental growth of 17.50%, while Chennai exhibits a growth rate of 14.80%. Mumbai and Delhi, though comparatively lower, still demonstrate steady growth at 5.70% and 3.80% respectively.

Preferable Investment cities arranged from top to bottom based on the above Data:

Insights by city:

1. Bengaluru:

???- Bengaluru has the lowest vacancy rate at 9.5%, indicating high demand for office spaces.

???- Average rents are relatively high at 82.7, reflecting a strong rental market.

???- With 43 msf of new supply planned between 2023-2025, there are significant investment opportunities for office spaces.

???- Bengaluru leads in quarterly absorption with 3.73 msf, indicating robust demand and occupancy.

???- The city has the highest total stock of 174 million sq. ft., offering a wide range of options for investors.

???- Rental growth has been impressive at 25.40%, making it an attractive market for investment.

2. Hyderabad:

???- Hyderabad has a vacancy rate of 20.5%, indicating a relatively balanced office market.

???- Average rents are at 62, reflecting moderate rental rates.

???- The city has a significant new supply of 50 msf planned, showcasing growth potential.

???- Quarterly absorption stands at 2.1 msf, indicating steady demand for office spaces.

???- With a total stock of 90 million sq. ft., Hyderabad offers a considerable inventory for investment.

???- Rental growth has been strong at 19.60%, making it an attractive market for investors.

3. Pune:

???- Pune has a low vacancy rate of 11%, indicating strong demand and occupancy.

???- Average rents are at 72, reflecting a moderate rental market.

???- With 16 msf of new supply planned, the market shows potential for expansion.

???- Quarterly absorption stands at 0.95 msf, indicating steady demand for office spaces.

???- Pune has a total stock of 64 million sq. ft., offering investment opportunities.

???- Rental growth has been positive at 17.50%, making it an attractive market for investors.

4. Chennai:

???- Chennai has a vacancy rate of 14%, indicating a relatively balanced office market.

???- Average rents are at 58, reflecting competitive rental rates.

???- With 16 msf of new supply planned, the market shows potential for expansion.

???- Quarterly absorption stands at 0.95 msf, indicating steady demand for office spaces.

???- Chennai has a total stock of 60 million sq. ft., providing investment options.

???- Rental growth has been positive at 14.80%, making it an attractive market for investors.

5. Mumbai:

???- Mumbai has a vacancy rate of 20.5%, indicating a relatively balanced office market.

???- Average rents are high at 117, reflecting a strong rental market.

???- The city has 17% of the planned new supply, showcasing growth potential.

???- Quarterly absorption stands at 2.1 msf, indicating steady demand for office spaces.

???- With a total stock of 108 million sq. ft., Mumbai offers a considerable inventory for investment.

???- Rental growth has been moderate at 5.70%, making it a stable investment market.

6. Delhi:

???- Delhi has a vacancy rate of 25.23%, indicating relatively higher availability of office spaces.

???- Average rents are at 62, reflecting moderate rental rates.

???- With 22 msf of new supply planned, the market shows potential for growth.

???- Quarterly absorption stands at 1.65 msf, indicating moderate demand for office spaces.

???- Delhi has a total stock of 134 million sq. ft., providing ample investment opportunities.

???- Rental growth has been relatively lower at 3.80%, making it a stable investment market.

Conclusion:

As we conclude this analysis of the Indian office market, it becomes evident that Bengaluru, Hyderabad, Pune, Chennai, Mumbai, and Delhi each offer unique opportunities for investors. From low vacancy rates and competitive rents to upcoming supply and rental growth, these cities showcase distinct advantages and dynamics. It is crucial for investors to consider their investment goals, risk appetite, and market trends while evaluating the potential of each city. By leveraging the insights gained from this analysis, investors can navigate the Indian office market with confidence and make informed decisions that align with their investment strategies.

Follow Arjun Reddy Patel to stay Relevant with Indian Commercial Real estate.

[1]. 戴德梁行 's Q1 2023 Market beat Reports

[2]. CRE Matrix Q3 2022 Office

[3]. Anarock H1 23 Office report