India's major Tier-1 cities saw a 7% increase in commercial real estate
In the third quarter of 2023, India's major Tier-1 cities witnessed a 7% increase in the supply of commercial real estate, which totaled 14.61 million square feet, as per a study conducted by PropEquity. This growth can be attributed to the government's proactive measures to boost the IT sector through tax incentives and infrastructure developments. Among all the cities, Hyderabad emerged as the leader with 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.
Businesses and enterprises have been expanding their operations, highlighting the sector's vibrancy and potential for further development. Among the Tier 1 cities, MMR has the highest net occupancy and a 9% YoY increase in new supply. In contrast, the Delhi-NCR area has seen a significant drop in new properties being built, with a 65% decrease compared to the previous year due to the excess supply from earlier quarters and high rental prices in the current one. Consequently, 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%, primarily because of the higher net occupancy in this quarter. The top micro-markets in Delhi NCR based on occupancy levels are Gurugram's Sector 18 and Noida Expressway, primarily due to leasing activities by Citi Bank and Teleperformance.
India's commercial real estate market is expanding rapidly, connecting businesses with dynamic commercial spaces that meet their evolving needs. In tier-1 cities, the supply of commercial real estate has surged by 7%, indicating a promising future for the sector. We are excited to be a part of this exhilarating journey. The current wave in Indian commercial real estate is expected to continue for the next quarter, fueled by the upcoming festive season and supported by demographic strengths, improved business sentiment, and government initiatives in high-value sectors such as manufacturing and infrastructure. Garvit Tiwari, Director & Co-Founder of InfraMantra, shared this insight.
The vacancy rates in the top Tier-1 cities of India have remained stable, with only 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 million square feet. Hyderabad and Bengaluru have the largest share of vacant stock at 43%, followed by MMR with 15%. This trend highlights the evolution of India's real estate market, which is 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. Although the marginal increase in vacancy levels is promising, it's important that key players in the industry stay vigilant and flexible to adeptly navigate the continually shifting landscape of the commercial real estate sector.
