BANGALORE 3Q 2011 OFFICE REPORT

ECONOMY

The Indian economy grew at 7.7% during the second quarter of the year, the lowest in the last six quarters. High inflation and steady increase in interest rates hampered  the growth in the domestic market. Although the manufacturing sector grew 7.2% over the year in the second quarter, higher than the previous quarter’s growth rate, the construction sector saw a meager 1.2% yearly increase in the second quarter as compared to the last quarter’s growth of 8.2% due to slower construction activity and an increase in interest rates.

OVERVIEW

Bangalore office market continued with its buoyant trend recording demand at approximately 3.34 million square feet (sf) during the third quarter of 2011. The supply added was considerably healthier at approximately 1.4 million sf as opposed to the relatively conservative infusion during the previous two quarters. Supply witnessed relatively quick take-up with approximately 76% being already leased.Outer Ring Road micro market that has been observant to a dearth of supply,recorded a major infusion in the SEZ space comprising almost 53.6% of the new supply. The overall SEZ vacancy in the city as a result rose marginally to 3.9%; though the new supply was mostly leased, registering only 17% vacancy by the end of the quarter. Outer Ring Road micro market closely followed by Whitefield accounted for the highest share in the absorptions. Even in the backdrop of high absorption levels, the vacancy across the Grade A buildings registered a marginal decline to 12.3%. This was primarily due to increased take-up in second generation supply coupled with good absorption levels in Grade B space. Quite a few corporates were observed to sub-lease their spaces; and approximately 122,000 sf of absorption was in the sublease space. Rentals however, reached a plateau in most micro markets to capitalize on the enquirers as the new leases transacted during the quarter were mostly at competitive prices that were negotiated over quite a period of time.

OUTLOOK

The city will witness cautious delivery of projects for the remaining of 2011.Developers are likely to initiate delivery of projects that have garnered committed interest from corporates for take-up on space being delivered or have been substantially pre-committed. Demand, on the other hand, too is likely to be subdued

in view of the increased global uncertainties observed during the previous quarter pressurizing the corporates to weigh their expansion plans. However, demand for spaces in the range of 7,000 sf to10,000 sf will continue to prevail. As a result, the vacancy levels are expected to come down marginally or remain stable in the forthcoming quarter. Though the market is witnessed to scarcity of options and lesser space availabilities, rentals will remain stable on account of the considerably high price-points commanded and the eagerness of developers to close deals arising from enquiries.