In the third quarter of 2023, India's major Tier-1 cities saw a 7% increase in the supply of commercial real estate, totaling 14.61 million square feet, as per a study by PropEquity. This growth can be attributed to the government's proactive measures to boost the IT sector through tax incentives and infrastructure developments. Hyderabad emerged as the clear leader, accounting for approximately 35% of the new supply, followed by Bengaluru, which contributed 25% of the new supply. During the same period, there was a remarkable 20% increase in net occupancy, rising from 10.30 million square feet (in Msft) in the previous quarter, Q2 CY'23, to 12.31 million square feet (in Msft) in Q3 CY'23. However, gross occupancy only slightly increased by 2% in Q3 2023 compared to the previous quarter, Q2 2023. This substantial growth in occupancy is a testament to the dynamic nature of the market and the heightened demand for commercial real estate during that period.
It suggests that businesses and enterprises have been actively expanding their presence and operations, underscoring the vibrancy of the sector and its potential for continued development in the near future. Among the Tier 1 cities, MMR ranks at the top where net occupancy outstrips new supply and also records a 9% Y-o-Y increase in new supply. The Delhi-NCR area has experienced a significant drop in new properties being built in the last few quarters, with a 65% decrease compared to the previous year. This is mainly due to the excess supply from earlier quarters and the high rental prices in the current one. As a result, Delhi NCR's share in new property supply across Tier-1 cities has fallen to 7%. Rental rates in Delhi-NCR have surged, with a YoY rise of 17% and a QoQ increase of 45%. This can be attributed to the higher net occupancy in this quarter relative to the new property supply. Gurugram's Sector 18 and Noida Expressway are the top micro-markets in Delhi NCR based on occupancy levels, primarily due to leasing activities by Citi Bank and Teleperformance.
“In the realm of India’s commercial real estate, this expansion sparks the vital connection between businesses and dynamic commercial spaces tailored to their ever-changing demands. Tier-1 cities in India witnessed a 7% surge in commercial real estate supply, and with this surge, we witness a promising horizon for India’s commercial real estate market, and we’re thrilled to play a role in this exhilarating journey. The current wave in Indian commercial real estate is set to ride high for the next quarter, fueled by the forthcoming festive season and bolstered by demographic strengths, enhanced business sentiment, and government-driven initiatives in high-value sectors like manufacturing and infrastructure,” said Garvit Tiwari, Director & Co-Founder, InfraMantra.
The vacancy rates in the top Tier-1 cities of India have remained stable, with a marginal 2% increase in vacancy levels compared to Q2 2023. As of Q3 2023, the total vacant stock in these cities amounts to 152.32 Mnsft. Hyderabad and Bengaluru have the largest share of vacant stock at 43%, followed by MMR with 15%. This trend highlights the evolution within India’s real estate market, influenced by various factors such as the delicate balance between supply and demand, the evolving requirements of businesses, and the prevailing economic circumstances. These factors collectively shape the commercial property arena. While the marginal increase in vacancy levels is promising, key players in the industry must remain vigilant and flexible to adeptly navigate the continually shifting landscape of the commercial real estate sector.
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