Chennai leads Bengaluru, Hyderabad in offshore MNC office leasing

Photo-TheEconomictimes

Chennai has emerged as a frontrunner, surpassing Bengaluru and Hyderabad, in terms of office space leased by offshore multinational companies, as per data from Knight Frank India in 2003. The figures reveal that MNCs leased a substantial 7 million square feet of office space in Chennai, outpacing Hyderabad's 6.1 million sq. ft and Bengaluru's 5.6 million sq. ft. Experts attribute this shift to factors such as high rental rates and congestion in established markets, prompting overseas MNCs to explore emerging markets like Chennai.

Vivek Rathi, Knight Frank India's National Director of Research, underscores the robust leasing activity observed in Chennai over the past few years, with a notable 84 percent of the leasing concentrated in the global capability centre (GCC) segment. Rathi emphasizes the role of lower commercial rentals, coupled with the availability of Grade A office spaces and supportive city infrastructure, in driving leasing activities in Chennai.

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Meanwhile, Bengaluru and Hyderabad continued to experience robust rental markets in FY24, with Bengaluru's real estate prices reaching a decade high in CY2023. However, Chennai maintained its competitive edge, particularly in the manufacturing sector, where it boasted a strong presence in electronics and automobiles. This sectoral strength contributed to Chennai's lead over Bengaluru and Hyderabad in office leasing activity.

The impact of the global IT slowdown and associated layoffs has also affected Bengaluru's office sector, resulting in a 14 percent year-on-year decrease in domestic office leasing to 12.5 million sq. ft in 2023. In contrast, Chennai witnessed a substantial growth of approximately 92 percent, reaching 10.2 million sq. ft in the same period.

Rathi highlights Chennai's vibrant market, noting the infusion of new non-IT sectors like global banking corporations and R&D companies into the GCC segment. Looking ahead to CY2024, Chennai appears poised to maintain its lead in offshore leasing if the office sector sustains its robust leasing activities.

The demand from offshore MNCs in India has seen a notable uptick, with leasing volumes increasing by 26 percent to 27.3 million sq. ft last year. Knight Frank India observes a growing trend among global companies seeking cost-effective solutions, with offshoring emerging as a strategic avenue to minimize expenses. This trend has positioned India, alongside the Philippines, Malaysia, and Vietnam, as critical hubs for offshoring functions in the Asia Pacific region.

Projections indicate further expansion in India's IT service exports, expected to reach $230.5 billion by 2025 from $185.5 billion in 2023. Notably, the offshoring industry in India accounts for nearly 60 percent of overall service exports in 2023, underlining the significance of offshoring in driving office demand and economic growth in the country.