Bangalore Office Space Q1 2012 Report

HIGH LEVEL OF PRE-COMMITMENTS

Bangalore‟s commercial office market was characterized by buoyant performance in the first quarter of 2012 with demand approximately at 5.24 million square feet (msf). Pre-commitments constituted almost 55% of the total demand with lease commitments for space in the range of 0.25 msf to 1.6 msf. The IT/ITeS sector was the prime absorber. Interestingly, small and medium enterprises accounted for quite a few significant deals in the range of 40,000 square feet (sf) to 90,000 sf. Peripheral markets of Whitefield and Electronics City recorded the highest absorption on account of availability in Grade A space at comparatively reasonable rentals. The absorbed space ranged between10,000 sf to 40,000 sf of floor-space area. About 32% of the total absorption was recorded in Grade B developments. On account of persistent demand, an escalation in the rentals was observed in the CBD/off-CBD and suburban micro markets.

CONTINUED ABSORPTION IN GRADE "B" SPACES

Supply infusion during the quarter was recorded at approximately 1.27 msf of which approximately 350,000 sf was in the SEZs. Most of the new supply was delivered in the latter part of the quarter; as a result of which,84% of the new supply remained vacant. This led to a marginal increase in the vacancy level in the city to about 13.2% in the first quarter of 2012 as compared to 12.0% in the fourth quarter of 2011. Vacancy in SEZ developments also witnessed a rise to about 4.4% on account of new supply not taken up.

Notwithstanding the high availability in Grade A developments in Whitefield, sizeable absorptions in Grade B developments were primarily due to better value propositions of available and fully furnished space in these developments. The suburban markets dominated the quantum of deals for Grade B developments.Quite a few corporates were also observed to vacate their existing premises and consolidate their operations in other developments or incubation spaces.

OUTLOOK

Approximately 11 msf of new supply is expected by the end of 2012. Absorption levels will remain on the higher side as significant lease transactions are expected to be closed during the forthcoming quarters. By the end of 2012, vacancy too is expected to come down marginally and suburban markets will continue to witness absorptions in Grade B developments