Demand for Bangalore Office Space Continues to be Robust

With the market sentiment improving, Bangalore continues to remain as the lucrative office market destination both from the investors and corporate occupiers' perspective,

The Bangalore office market has absorbed close to 1 million sqft during the first quarter this year. The absorption was equally balanced between SEZ office and non-SEZ space. However, the challenges before the commercial property developers are the soaring input and labour cost. For Grade A warm shell building, the construction has now touched close to Rs 2,500 per sqft, according to industry sources. 

The Central Business District (CBD) of MG Road, Richmond Road, Residency Road and Ulsoor Road witnessed absorption of around 40,500 sq ft of office space, primarily in the form of mid-sized transactions, in the first quarter of 2012, according to CB Richard Ellis' first quarter report. Corporates continued to remain focused on properties in the peripheral and suburban business districts due to the minimal availability of grade A space in the CBD. Supply of around 26,000 sq ft was witnessed in this micro market while rental values remained stable when compared to the previous quarter. 

The Extended Business District (EBD) of Indira Nagar, Koramangala, Inner Ring Road, and CV 

Raman Nagar did not observe significant project completions in this quarter. Absorption of around 43,000 sq ft was witnessed, while rental values remained largely stable in the present quarter. Absorption of around 45,000 sq ft was witnessed in the South Bangalore micro-market of Bannergatta Road, JP Nagar, Jayanagar and Mysore Road. Bannerghatta Road witnessed significant number of transactions in the built-to-suit format for large IT firms expanding their presence in the city. There were no significant project completions in this micro-market during the quarter. Rental values also remained stable compared to the previous quarter. 

The Peripheral Business District (PBD) of Whitefield continued to be a priority destination for corporate occupiers, with absorption of around 0.18 million sq ft being reported in the present quarter, leading to a marginal dip in vacancy rates as compared to the previous quarter. Whitefield did not witness any supply during the review period, while Electronic City witnessed supply of about 0.30 million sq ft during this quarter. Absorption level remained unchanged in Electronics City while rental values were stable over the last quarter. 

The Sarjapur Outer Ring Road (ORR) continued to remain in focus amongst corporate occupiers, as well as developers, with supply of around 0.80 million sq ft witnessed in this quarter. Absorption of around 0.18 million sq ft was witnessed and rental values remained stable compared to the previous quarter. 

The North Bangalore micromarket witnessed supply of around 0.45 million sq ft, while absorption of about 0.10 million sq ft was recorded during the review period. Rental values increased marginally during the quarter due to limited availability of grade A office space in this region. This micro-market is currently being evaluated by large corporates as a significant quantum of office space is expected to be added to this market in the near future. 

According to industry sources, developers continue to build speculative buildings on the assumption of healthy absorption of over 11 million sqft last year and simultaneously looking for clients during the development. And PE funds continue to evince keen interest for investment in the city's commercial segment as the year-on-year absorption of office space is encouraging. 

For instance, RMZ is building 7 million sqft, both SEZ and non-SEZ space, in a new project titled EcoWorld on outer ring road. "This is just one instance of the growing confidence in the city's inherent potential for commercial property development", says Juggy Marwaha, Director, Leasing, RMZ Corp. Besides Maple Tree's new project, Salarpuria and Mantri Developers are said to be in the final stages of getting approval for large commercial development near Koramangala-Sarjapura road, according to market sources. 

The combination of strong demand and restricted supply was instrumental in bringing the city's overall vacancy rate down from10.6% in 4Q11 to 9.7% in 1Q12 and, in turn, perpetuated rental growth in the SBD and Whitefield sub-markets, says N S Srinivasa Reddy, Manager-Research, Jones Lang LaSalle. Rents in Whitefield submarket rose from Rs 32 per sqft to Rs 32.5 per sqft during the first quarter. This can be attributed to lack of ready-to-move-in office space in other sub-markets as well as increased interest from IT occupiers in this sub-market and availability of large floor plates and good-quality buildings. 

As regards leasing, the IT/ITES sector accounted for the majority of the leasing with the major companies in the sector leasing office space in Bangalore including Net App, Intercall, Caterpillar Inc, Cisco, IXIA, LIARD Technologies, Enterprise Nube, Carl Zeiss, Time Warner, InMobi, Indegene, SmileInteractive, Flipkart and Quintiles. 

Market Outlook 

The city is witnessing a number of infrastructure developments such as signal free access from Sarjapur ORR to the Airport, Mass Rapid Transit System - Metro which will enhance connectivity within the city and elevated expressway along the Bellary Road, again to the airport in Bangalore. These projects would enhance connectivity from city centre to the peripheral markets which is expected to augment the demand for office developments in the North and South-East locations of the city. Overall, the city continues to retain its status as the lucrative office market both from the investors and corporate sector's perspective.