50% decline in commercial realty supply in Q1 signals dynamic shift in India’s Tier-1 cities: Study

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The commercial real estate market in India’s Tier-1 cities witnessed a significant downturn in new supply during the first quarter of 2023, according to a report by PropEquity. There has been a staggering 50% decline in the new supply of commercial properties, signaling a remarkable shift in the dynamics of the sector compared to the same period last year.

Despite ongoing market fluctuations, the vacancy rates in the top Tier-1 cities of India have remained relatively stable. The latest figures indicate a marginal 5% decrease in vacancy levels compared to Q1 2022. The total vacant stock in Q1 2023 amounts to 141.27 Mnsft across these cities, with the largest share attributed to Delhi-NCR, accounting for 39% (55.71 Mnsft), primarily due to high vacancy percentages in previous quarters and an abundant supply surpass occupancy levels in the earlier quarters of 2021. Following closely behind is Bengaluru, contributing 19% (26.77 Mnsft), and then Mumbai Metropolitan Region (MMR) and Hyderabad, with 15% and 12% shares, respectively.

This trend reflects the ongoing dynamics of the real estate market in India, where factors such as supply-demand imbalances, evolving business needs, and economic conditions continue to shape the commercial property landscape. While the slight reduction in vacancy rates is encouraging, it is important for industry stakeholders to remain vigilant and adaptive to effectively navigate the ever-changing real estate environment.

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“Amidst a noteworthy 50% decline in the supply of commercial properties and a marginal 5% decrease in vacancy levels compared to Q1 2022, the commercial real estate market is witnessing a consequential shift. The reduced supply has caused rental prices to surge, emphasizing the significance of agility and strategic decision-making for businesses searching for suitable commercial spaces,” said Samir Jasuja, Founder & CEO, PropEquity.

While this poses challenges for companies seeking new locations, it also unveils exciting investment prospects in existing properties. “To successfully navigate this evolving real estate landscape, industry players must remain well-informed and adopt innovative strategies that adapt to the market dynamics,” he added.

“We have observed a remarkable appreciation in transacted rental prices across Tier-1 cities. The notable 8-36% year-on-year increase indicates a strong demand for commercial properties and highlights the potential for rental income growth,” said Shiwang Suraj, Founder & Director, Inframantra.

“This upward trend in rental prices presents favorable opportunities for both tenants and property owners, and our firm is committed to providing tailored solutions and expert guidance to help clients navigate and capitalize on these market dynamics,” he added.

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50% decline in commercial realty supply in Q1 signals dynamic shift in India's Tier-1 cities: Study 10

On a year-on-year basis, all Tier-1 cities, except Pune, have witnessed a significant appreciation in transacted rental prices, ranging from 8% to 36%. Among these cities, Bengaluru leads the pack with a remarkable 36% increase in transacted rental prices compared to the previous year.

In the first quarter of 2023, Mumbai Metropolitan Region (MMR) continues to maintain the highest rental price per square foot at 134 INR/Sft (based on super area) among the top Tier-1 cities. This represents a significant 16% increase on a year-on-year basis.

Among the Tier-1 cities, Bengaluru has witnessed the highest price appreciation, with a remarkable 36% increase on a yearly basis and a commendable 13% increase on a quarter-on-quarter basis. Hyderabad follows closely behind with a 34% appreciation on a year-on-year basis and an 18% appreciation on a quarter-on-quarter basis.

The first quarter of 2023 witnessed a remarkable total gross occupancy of 15.63 million square feet across the top Tier-1 cities in India. Among these cities, Bengaluru secured the largest share with approximately 28% (4.34 million square feet), followed by Delhi-NCR at 21% (3.41 million square feet), and Hyderabad at 18%. The remaining cities collectively accounted for 33% of the gross occupancy in this quarter.

The net occupancy in these top Tier-1 cities reached 11.2 million square feet, with Bengaluru maintaining the largest share of approximately 28% (3.16 million square feet). It was followed by NCR with 22% (2.49 million square feet), and Hyderabad with 15% (1.75 million square feet). Notably, Bengaluru’s net occupancy exceeds that of Chennai in Q1 2022 by over 6 times.

Despite a slight decline in occupancy compared to the previous quarter, potentially due to IT sector layoffs, Bengaluru continues to lead among Tier-1 cities. Its status as the most preferred location for both Indian and global tech industries remains intact.


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