Hyderabad leads office space growth in South, Bengaluru still leads market

Office rental. Image: iStock
The growth of office space in South India for the next five years is pegged to be at around 100 million square feet of Grade A office space, according to industry experts. The growth is seen to be led by Hyderabad, which would see 78 per cent addition to stock. Chennai will see the second-largest growth rate in South India with 41 per cent growth while Bengaluru may see a 33 per cent over the period. 

Bengaluru has 108 million square feet, Chennai has 58 and Hyderabad 49 million square feet of Grade A office stock in 2017, according to real estate consultant JLL India. Industry experts say that Chennai has been seeing a demand higher than supply in the past several months. 

"In the next five to seven years, we expect to see all three south India office markets to grow at a healthy pace. The three markets will add approximately 100 million square feet of Grade A office space, which will be led by Hyderabad adding close to 40 million square feet. Chennai (+41%) and Bangalore (+33%) will also see a healthy increase their Grade A office space supply in the next few years," said JLL India.

Experts say that while Bengaluru has been the market leader in the office space adaption, Hyderabad has been growing fast as a competitor. Colliers International has recently commented that Hyderabad was accounted for 13 per cent of the total office absorption, exceeding Mumbai, the financial capital of India, during 2017, and there has been a surge in consolidating and relocating activities to be more cost-effective.

The Bengaluru office built space has doubled in the past decade and at present, the city accounts for about 25 per cent of India's total Grade A office inventory. However, the growth has come at the cost of unplanned urbanisation and created massive pressure on existing infrastructure.

"Although, Bengaluru's office market landscape is studded with the presence of major technology companies and start-ups, the rising rents, supply crunch, technology disruption, the emergence of flexible office space and infrastructure will remain key concerns in coming years,” said Ritesh Sachdev, Senior Executive Director, Occupier Services at Colliers International India recently.

Chennai may see an estimated 15 million sq ft of office space to get absorbed in the next five years creating close to 2,00,000 new white collar jobs in the city, says JLL. The office vacancy in the city declined to 9.2 per cent in 2017 from 19.5 per cent in 2014. Falling office vacancy and improving office absorption reinforced confidence among major developers such as Brigade, DLF, Embassy, RMZ and K Raheja Corp to come up with new office projects in the city.

"Towards the end of 2017, Chennai attracted new investments such as Peugeot and Freudenberg and saw more investments coming from existing players such as Hyundai and Saint Gobain. Chennai has also attracted about $ 8 Bn in private equity since 2008 and ranks fourth after Mumbai, Delhi and Bangalore. We expect the share and the absolute value to increase as more global companies start to show interest in the market for its talent pool and attractive rental values,” said Ramesh Nair, CEO and Country Head, JLL India. 

"Chennai’s office market has recorded strong momentum this past year despite limited availability of Grade A supply in preferred micro markets. Key micro markets in the city continue to witness consistent demand from global and domestic occupiers," said Ameeth Raja, senior director, advisory and transaction services, India, CBRE South Asia earlier this year.

The office space growth in these South Indian markets is expected to be on a steady growth in next few years, added JLL India. " We expect the demand to remain steady for the next few years which will help these markets absorb the expected supply. With overall economic growth predicted at over 7% GDP for the next few years, we anticipate leasing activities in these locations to remain strong," it maintained.