Chennai ranks ahead of Bengaluru, Hyderabad in offshore MNC office leasing

The report of Knight Frank explains that, the commercial real estate market of Chennai has surpassed the real estate market of Bengaluru and Hyderabad in terms of office space leased by offshore multinational companies in 2003. Various MNC firms have leased out nearly 7 million square feet commercial space in Chennai compared with 6.1 million sq. ft in Hyderabad and 5.6 million sq. ft in Bengaluru. The experts of the markets say that high rental rates and issues such as congestion led overseas MNCs to look at emerging markets such as Chennai.

National director of research at Knight Frank India, Vivek Rathi, explained that the leasing activity is observed stronger in Chennai during the last couple of years. Nearly, 84% of the leasing in the city was in the global capability centre (GCC) segment.

He further quoted, "Lower commercial rentals in Chennai with a good supply of Grade A office spaces and supporting city infrastructure played a major role in boosting leasing activities." 

The report also noted that, rental market in Bengaluru and Hyderabad remained strong in FY24, and the real estate market in Bengaluru witnessed a skyrocketing price of real estate  in CY2023. Moreover, the the manufacturing sector in Chennai remained strong in the electronic and automobile sectors, giving the city an edge over Bengaluru and Hyderabad in leasing activity.

As per the report, the global IT slowdown over the past two years and layoffs have deeply affected Bengaluru's office sector with domestic office leasing dipping by 14 percent YoY to 12.5 million sq. ft in 2023. While in Chennai office leasing shot up about 92% to 10.2 million sq. ft in the same period. 

Rathi also added, "With a healthy market in Chennai, the GCC sector saw the infusion of new non-IT sectors like global banking corporations and R&D companies. In CY2024, Chennai has the potential to continue the lead from offshore leasing if the office sector maintains its leasing activities."

The report also explained that, leasing volumes by offshore companies in India increased 26% to 27.3 million sq. ft last year from the previous year. It added that, the global companies are increasingly seeking cost-effective solutions to minimize expenses, and a growing number are now looking towards offshoring functions as a strategic avenue. 

Market report says that, offshoring has emerged as a critical driver for office demand in four Asia Pacific hubs - India, the Philippines, Malaysia, and Vietnam.

Knight Frank report anticipated that, Indian IT service exports are expected to expand to $230.5 billion in 2025 from $185.5 billion in 2023 and the offshoring industry in India accounts for almost 60% of overall service exports in 2023.