According to a PropWquity study, the supply of commercial real estate in India’s major Tier-1 cities increased by 7% in the third quarter of 2023, reaching an overall total of 14.61 million square feet. The government's proactive efforts to support the IT industry through infrastructure improvements and tax breaks are responsible for this growth. Hyderabad emerged as the best performer overall, contributing about 35% of the new supply. Bengaluru followed with 25% of the new supply.
Key Highlights
- Increase in Net Occupancy: A notable 20% increase in net occupancy was observed, rising from 10.30 million square feet in Q2 2023 to 12.31 million square feet in Q3 2023.
- Gross Occupancy: Gross occupancy increased by a mere 2% from Q3 2023 to Q2 2023.
This significant increase in occupancy signals the market’s dynamism and the high demand for commercial real estate at the time.
City-Specific Performance
- MMR: With a 9% year-over-year increase in new supply, MMR has the highest net occupancy among the Tier-1 cities.
- Delhi-NCR: This region saw a significant decline in new property construction, with a 65% decrease compared to the previous year, attributable to excess supply from prior quarters and high rental prices. Delhi NCR now only constitutes 7% of the supply of new real estate in Tier-1 cities.
- Rental Rates: The sharp increase in rental rates in Delhi-NCR, which have increased year-over-year by 17% and quarter-over-quarter by 45%, is primarily due to the higher net occupancy in this quarter.
- Micro-Markets: Gurugram’s Sector-18 and Noida Expressway are among the top micro-markets in the Delhi NCR, driven by leasing initiatives by Citi Bank and Teleperformance.
Market Trends
India’s commercial real estate market is expanding rapidly, offering companies dynamic spaces tailored to their changing needs. The festive season, strong demographics, increasing business confidence, and government initiatives in high-value industries like infrastructure and manufacturing are expected to continue driving growth in the upcoming quarter.
Vacancy Rates
There was a small shift in the number of open positions from Q2 2023 to Q3 2023 in the top Tier-1 cities of India. As of Q3 2023, there are 152.32 million square feet of vacant space overall in these cities. Hyderabad and Bengaluru continue to have the most unsold stock at 43%, while MMR stands at 15%. This pattern reflects the evolving nature of the Indian real estate market, influenced by various factors, including economic conditions, the dynamic interplay between supply and demand, and the changing needs of businesses.