South Indian Cities Dominate Office Leasing with 26% Rental Growth
Bengaluru, Hyderabad, and Chennai Drive Commercial Space Expansion Amidst Rising Demand
South India has emerged as the driving force behind India’s commercial real estate growth, witnessing a substantial 26% rise in average office rentals over the past six years, according to a recent ANAROCK Research report. Bengaluru has led the surge, with monthly office rentals increasing by 26%, from ₹74 per sq. ft. in 2019 to ₹93 per sq. ft. in 2024. Hyderabad followed closely with a 25% rise, reaching ₹67 per sq. ft., while Chennai recorded a 20% growth, with rentals climbing from ₹60 per sq. ft. to ₹75 per sq. ft.
In contrast, Delhi-NCR recorded the slowest growth in office rentals, with only a 10% rise, reaching ₹86 per sq. ft. in 2024 from ₹78 per sq. ft. in 2019. Western cities like Pune and Mumbai Metropolitan Region (MMR) saw moderate rental increases, at 19% and 13%, respectively. Pune’s rentals grew from ₹68 per sq. ft. to ₹81 per sq. ft., while MMR recorded an increase from ₹124 per sq. ft. to ₹140 per sq. ft. Despite the new supply addition of 48.11 million sq. ft. across India’s top seven cities, office vacancy rates declined to 16.5% in 2024 from 17.8% in 2023. However, compared to the 13.5% vacancy rate in 2019, the market still has room to stabilize. Chennai reported the lowest vacancy rate among all major cities at just 9.3%.
South India Captures the Lion’s Share in New Office Space
Between 2019 and 2024, South Indian cities dominated office space development, contributing to nearly 61% of new supply. Of the total 283.21 million sq. ft. of new office stock added across the top seven cities, Bengaluru, Hyderabad, and Chennai accounted for a massive 172.96 million sq. ft. The western region, comprising MMR and Pune, added 60.31 million sq. ft. (21% share), while NCR recorded the least supply addition at 47.39 million sq. ft. (17% share).
Despite the high supply, demand for office spaces in South India has remained robust, driven by the IT, BFSI, and co-working sectors. “Bengaluru, Hyderabad, and Chennai have absorbed 57% of India’s new office space over the last six years, reflecting the strength of their IT infrastructure and skilled workforce,” said Peush Jain, MD-Commercial Leasing & Advisory, ANAROCK Group. With corporations increasingly prioritizing tech-centric business hubs, these cities are expected to sustain high demand over the next 6-8 quarters.
Shifting Market Dynamics: Rise of Co-Working and BFSI Sectors
Over the last six years, India’s commercial real estate has witnessed significant shifts in sectoral demand. Co-working spaces have emerged as a major force, increasing their share of gross leasing from 15% in 2019 to over 25% in 2023. However, 2024 saw a slight dip, bringing the share down to 21%. Meanwhile, the BFSI sector has gained prominence, expanding its share from 7% in 2019 to 17% in 2024.
Conversely, the traditional IT/ITeS sector, which dominated the market with a 42% share in 2019, has seen a decline to just 28% in 2024. This shift reflects the evolving needs of businesses, with global corporations establishing Global Capability Centres (GCCs) in India and startups gaining renewed momentum.
Sustainability and Urban Growth in South India’s Office Market
The rapid expansion of office space in South Indian cities has raised concerns about sustainability and urban infrastructure. With Bengaluru, Hyderabad, and Chennai accounting for over half of India’s commercial space absorption, the demand for sustainable office developments has surged. Green buildings, energy-efficient workspaces, and transit-oriented developments are gaining traction as corporations seek to align with Environmental, Social, and Governance (ESG) goals.
However, rapid urbanisation has also posed civic challenges, particularly in Bengaluru and Hyderabad, where traffic congestion and inadequate public transport infrastructure remain significant issues. As office demand continues to grow, cities must invest in metro expansions, road networks, and mixed-use developments to accommodate future growth while ensuring environmental sustainability.
