While most investors look at factors like vacancy in the market, the historical rent growth and rentals of comparable assets, I have seen that even the most seasoned of investors miss out on taking a look at the upcoming supply in the market — which is the only verifiable forward-looking metric in real estate analysis. This upcoming supply will determine which way rents are likely to go for new tenants, likelihood of existing tenants renewing their leases and whether they will honour their escalation commitments.
A look at property-by-property in the key office markets includes visiting under-construction sites, taking photographs, talking to site managers as well as brokers to precisely understand when a particular building is likely to come on stream. While this is a cumbersome exercise, we now believe that we have the most accurate understanding of where each micro-market is headed across the key office markets of Bengaluru, Chennai, Hyderabad, Mumbai, and Pune.
Business-as-usual in Bengaluru
As India’s largest office market, Bengaluru has seen a steady growth in supply averaging ~12 million sq.ft. annually since 2018. 2024 and 2025 also are expected to be in line with historical supply addition with 22.9 million sq.ft. of new stock expected to get completed. There is a rapid spurt in new development coming up in North Bengaluru, towards where the city’s airport is located. 8.2 million sq.ft. of office space is expected to come up only in this locale in the next two years — an increase of over 50%.
The resurgence of Chennai
2023 was the best year for leasing in Chennai since 2010, with the demand nearly doubling from 2022. Vacancy in two key institutional locations — Suburban Business District (SBD) including Guindy, Porur, Mount Poonamalle Road, Adyar, etc. and Old Mahabalipuram Road (OMR) — have also been steadily declining. OMR has only 1.1 million sq.ft. of upcoming supply and the vacancies are expected to fall to sub 3%, making it one of the best performing micro-markets in the nation. The office market is now expanding on PTR (Pallavaram-Thoraipakkam Radial Road) where 3.6 million sq.ft. of upcoming supply is expected in the next two years due to its proximity to the airport as well as residential catchments.
Hyderabad will lead the way
Since 2019, there has been a surge in the upcoming supply across Hyderabad as many developers rushed to develop office space in the anticipation of the IT demand shifting out from Bengaluru. Telangana also has a unique policy of unrestricted FSI — which means that developers can build as high as possible, leading to them even competing to build the tallest skyscraper in the city. A 28.7 million sq.ft. of area is expected to be completed by 2025, ~25% higher than the 22.9 million sq.ft. of new office stock complete in second placed Bengaluru.
Nil supply in BKC, Mumbai
India’s most premium front-office market, Bandra Kurla Complex (BKC) has no upcoming supply getting completed in the next two years. The vacancy is also already at a sub-5% level. This supply crunch will drive the demand into other markets like Lower Parel, Andheri etc. Lower Parel is the only front-office market where there is space available due to the ~2.5 million sq.ft. worth of Grade A projects seeing completion in 2022. Other markets that will benefit from this supply glut will be Powai and Goregaon (Western Suburbs), where there is syncing of high quality, institutional supply with occupier interest. Some standalone Grade A+ projects in the vicinity of BKC like Wadala, Kurla and Kalina will also see some fresh leasing impetus due to the supply crunch.
The curious case of CBD Pune
The Central Business District (CBD) in any typical metro city is characterised by insignificant upcoming supply, high rentals and low vacancies primarily because of lack of space availability. However in Pune, 2.8 million sq.ft. of Grade A office space is expected to be completed by 2025 across three large projects by prominent developers like Godrej, RMZ and ABIL. A commercial real estate investor in this market should be extremely cautious as tenants may look to move into these newer assets.
The writer is Head of Investments, Property Share.
