Delhi-NCR recorded the highest office space vacancy among the top seven cities at 28.5%, while IT hubs like Pune and Bengaluru witnessed lower office vacancies, according to property consultant Anarock.
Pune currently has the lowest office space vacancy at 8.5%, with significant demand coming from the information technology sector. Chennai's office vacancy stood at 10.35%, followed by Bengaluru with 11.25% and Hyderabad with over 15%.
In contrast, cities like Delhi NCR, MMR (Mumbai Metropolitan Region) and Kolkata, with significant office demand coming from non-IT sectors such as BFSI and manufacturing/industrial, recorded higher office vacancies, says Anarock. Office vacancy in Kolkata stood at 23.5% while in MMR it was around 16%.
"NCR currently with the highest vacancy levels has approx. 26 million sq. ft. of planned or under-construction office stock, while MMR has just 15 mn sq. ft. of such inventory. Kolkata has a mere 2 mn sq. ft. of planned or under-construction office stock. This upcoming Grade A office stock is scheduled to be deployed in the respective cities within the next two to three years," says Anuj Puri, chairman at Anarock.
The cities with lower office vacancy levels currently have 108 mn sq. ft. of cumulative planned/under construction Grade A office stock. Of this, Hyderabad and Bengaluru have approximately 40 mn sq. ft. each planned or under construction. Chennai has 15 mn sq. ft. in the pipeline, and Pune has 13 mn sq. ft.
"The IT/ITeS sectors boomed during the pandemic," says Puri. "While most companies operated in WFH mode, many large and mid-sized corporates decided to hold on to their office spaces. At between ₹58 and ₹78 per sq. ft. per month, the average monthly office rentals in all four IT/ITeS driven cities are comparatively lower than in NCR and MMR, where they hover between ₹80 and ₹126 per sq. ft./month."
Many large and mid-size occupiers continued or renewed their leases during the pandemic because their business either saw no major impact or even grew during Covid-19. The cost of re-establishing or taking up new office space is costlier than holding on to existing leased spaces. Also, real estate costs are largely factored in IT/ITeS companies' billing rates, so letting spaces go can lead to a significant change in top-line projections.
In an interesting post-pandemic twist, the top cities with high available office stock along with high vacancies are now looking to reduce new office supply in the future. With the notable exception of Bengaluru, office developers in these cities are becoming increasingly cautious about adding new office supply.
Bengaluru currently has the maximum Grade A office stock of around 168 mn sq. ft., with office vacancy at 11.25%. Nevertheless, the city has about 40 mn sq. ft. of new Grade A office stock planned or under construction. This stock will hit the market in the next 2-3 years, says Anarock.