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While most investors look at the usual factors like the 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.
As an investment firm focused on delivering strong risk-adjusted returns to our investors, we at Property Share took it upon ourselves to thoroughly undertake the exercise of going property-by-property in the key office markets in India, taking photographs, visiting under-construction sites, talking to site managers as well as brokers to precisely understand when a particular building was likely to come on stream. While this was 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 Bangalore, Hyderabad, Mumbai, Pune and Chennai.
We are now sharing some key learnings from our report with the wider community on our portal. Some interesting snippets from the report…
Business-as-usual in Bangalore…
Bangalore, India’s largest office market, has seen a steady growth in supply averaging ~12 million square feet annually since 2018. 2024 and 2025 also are expected to be in line with historical supply addition with 22.9 million square feet of new stock expected to get completed. There is a rapid spurt in new development coming up in North Bangalore, towards where the city’s airport is located. 8.2 million square feet of office space is expected to come up only in this locale over the next 2 years – an increase of over 50%!
Hyderabad will lead the upcoming supply…
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 Bangalore. The state of Telangana also has a unique policy of unrestricted FSI – which means that developers can build as high as possible, leading to developers even competing to build the tallest skyscraper in the city. 28.7 million square feet is expected to complete by 2025, ~25% higher than the 22.9 million square feet of new office stock complete in second placed Bangalore.
Nil supply in BKC, Mumbai – A fresh impetus to other micro-markets…
India’s most premium front-office market – BKC has no upcoming supply getting completed in the next 2 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 square feet, worth of Grade A projects seeing completion in 2022. Other markets which 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 characterized by insignificant upcoming supply, high rentals and low vacancies primarily because of lack of space availability. Even our study showed the same trends in Bangalore, Hyderabad and Mumbai. However in Pune, 2.8 million square feet of Grade A office space is expected to be completed by 2025 across 3 large projects by prominent developers like Godrej, RMZ and ABIL. A CRE investor in this market should be extremely cautious as tenants may look to move into these newer assets.
The Resurgence of Chennai: Renewed demand, falling vacancy and limited supply…
2023 was the best year for leasing in Chennai since 2010, with the demand nearly doubling from 2022. Vacancy in the 2 key institutional locations - SBD (including Guindy, Porur, Mount Poonamalle Road, Adyar, etc.) and Old Mahabalipuram Road has also been steadily declining. Old Mahabalipuram Road has only 1.1 million square feet 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 the PTR Road (Pallavaram-Thoraipakkam Radial Road) where 3.6 million square feet of upcoming supply is expected in the next 2 years due to its proximity to the airport as well as residential catchments.
These snippets just scratch the surface of our extensive supply study. For a detailed analysis, including building-by-building breakup and actionable insights for each micro-market in Bangalore, Hyderabad, Mumbai and Pune, I invite you to access our complete city-specific reports at https://www.propertyshare.in/propshare-research/supply-study
The article has also been published on TheHindu.com on 8th March, 2024 (https://www.thehindu.com/real-estate/mapping-indias-office-spaces/article67891320.ece)
