Bengaluru, Hyderabad And Chennai Lead In Generating Highest Rental Yield From Office Space: Anarock

India’s commercial real estate market is booming at an unprecedented rate, with Southern cities leading the trend, as per a report by Anarock. Bengaluru, Hyderabad, and Chennai have surpassed other Indian regions when it comes to rental yield growth, office space demand and new supply over the last six years.

Peninsular India Outshines the Rest

Among all Indian cities, Bengaluru had the highest rental yield for office spaces. The rental yield for office spaces grew by 26 per cent from Rs 74 per sq. ft. in 2019 to Rs 93 per sq. ft. in 2024. Hyderabad also saw a significant increase in rental yield for office spaces which increased by 25 per cent, while rental yields for office spaces in Chennai grew by 20 per cent during the same time period. Meanwhile, the National Capital Region (NCR) recorded the lowest rental growth at 10 per cent, growing from Rs 78 per sq. ft to Rs 86 per sq. ft.

Western cities such as Pune and Mumbai Metropolitan Region (MMR), witnessed 19 per cent and 13 per cent growth, respectively.

IT Infrastructure ecosystem and skilled manpower in abundance in the region have contributed to the growth of corporate investment in Bengaluru, Hyderabad, and Chennai.

Peush Jain, MD-Commercial Leasing and Advisory, ANAROCK Group, said, “The Southern siblings of Bengaluru, Hyderabad, and Chennai have seen the lion’s share of space absorption. These cities have had an average growth of 25 per cent in rentals over the last six years, with a 57 per cent share in new supply. This is due to their robust IT infrastructure ecosystem and availability of a skilled workforce, which has enabled corporations to invest in these cities.”

The rising demand for the tech sector and space has contributed to creating a sustainable demand for office space.

“Driven by strong demand primarily from the technology sector and flex spaces, most key markets would see sustained office space demand in the next 6-8 quarters,” Jain added.

Meanwhile, the Gulf Cooperation Council (GCC) also contributed to the rising demand for office space in the southern cities.

“As India continues to be one of the fastest-growing economies, global corporations will look to establish their GCCs for expansion. The start-up ecosystem has again gained momentum, and they too will be major drivers of office demand alongside the BFSI sector,” he claimed.

Rising Demand Despite Increased Supply

A surge in commercial leasing has driven down vacancy rates despite a significant increase in new office space. In 2024, 48.11 million sq. ft. of office space was added across the top seven cities. Southern cities accounted for a whopping 57 per cent of this new supply, followed by the Western region with 30 per cent and the North with 12 per cent supply.

Despite this influx, vacancy rates fell from 17.8 per cent in 2023 to 16.5 per cent in 2024, indicating sustained demand.

Shift in Sectoral Preferences