South Indian Cities Dominate Commercial Leasing with 26% Rental Growth: Anarock Report

Commercial leasing in South Indian cities has witnessed substantial growth over the past six years, with Bengaluru, Hyderabad, and Chennai registering the highest increase in office rentals. According to a report by Anarock Research, the average rental rates in these cities have grown by 26%, outpacing other regions in India. This growth is attributed to strong demand from the IT sector, the emergence of flex spaces, and increasing investments from global corporations.

Office Rental Growth Trends

• Bengaluru: 26% increase, from ₹74 per sq. ft. in 2019 to ₹93 per sq. ft. in 2024.
• Hyderabad: 25% rise, from ₹56 per sq. ft. in 2019 to ₹67 per sq. ft. in 2024.
• Chennai: 20% growth, from ₹60 per sq. ft. in 2019 to ₹75 per sq. ft. in 2024.
• Pune: 19% rise, from ₹68 per sq. ft. in 2019 to ₹81 per sq. ft. in 2024.
• MMR: 13% growth, from ₹124 per sq. ft. in 2019 to ₹140 per sq. ft. in 2024.
• NCR: 10% increase (lowest among the cities), from ₹78 per sq. ft. in 2019 to ₹86 per sq. ft. in 2024.

Office Space Absorption and Vacancy Rates

Despite the addition of over 48.11 million sq. ft. of new office space in 2024 across the top seven cities, the overall vacancy rate has declined to 16.5% from 17.8% in 2023. However, vacancy rates remain higher than in 2019 when they stood at 13.5%. Chennai recorded the lowest office vacancy among the top cities at 9.3% in 2024.

Demand Drivers in South Indian Cities

Bengaluru, Hyderabad, and Chennai accounted for a significant share of office space absorption, with an average rental growth of 25% over six years. These cities captured 57% of the new office supply, driven by their robust IT infrastructure and availability of a skilled workforce. The steady influx of multinational corporations and global capability centers (GCCs) has contributed to this growth.

According to Peush Jain, MD-Commercial Leasing and Advisory at Anarock Group, the strong demand from the technology sector and flexible workspace providers is expected to sustain office space leasing over the next six to eight quarters.

New Office Supply Trends

Between 2019 and 2024, approximately 283.21 million sq. ft. of office space was added across the top seven cities in India. The year 2022 saw the highest supply addition, with 57.75 million sq. ft. of new office space introduced.

South Indian cities led the supply growth, contributing 172.96 million sq. ft., which accounts for 61% of the total new supply. Western cities, including Pune and MMR, added 60.31 million sq. ft., making up 21% of the total. NCR contributed 17% of the supply, with approximately 47.39 million sq. ft. added.

Among individual cities, Hyderabad, Bengaluru, and Chennai accounted for 57% of the total new office supply, adding around 27.65 million sq. ft. MMR and Pune contributed 30% of the supply with 14.5 million sq. ft., while NCR had the smallest share at 12%, adding approximately 5.93 million sq. ft.

Sector-Wise Leasing Trends

The co-working sector has seen a significant rise in demand over the past six years. In 2019, co-working spaces accounted for 15% of total office leasing in the top seven cities. By 2023, this share had increased to 25%, though it declined slightly to 21% in 2024.

The banking, financial services, and insurance (BFSI) sector has also expanded its footprint, with its share of total leasing increasing from 7% in 2019 to 17% in 2024. However, the IT/ITeS sector, which historically dominated office space leasing, saw a decline in its share from 42% in 2019 to 28% in 2024. This shift indicates a diversification in demand, with other industries increasing their office space requirements.

Future Outlook

The commercial office space market in South Indian cities is expected to remain strong due to continued demand from multinational corporations, GCCs, and technology-driven enterprises. As India remains one of the fastest-growing economies, global firms are likely to expand their presence, further driving office space demand.

With a well-established infrastructure, skilled talent pool, and strong investor confidence, Bengaluru, Hyderabad, and Chennai are expected to sustain their lead in commercial leasing. The evolving dynamics in flexible workspaces and increasing demand from non-IT sectors will further shape the trajectory of office space leasing in the coming years.