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Bangalore Q2 Office report :CBRE

The Central Business District (CBD) of MG Road, Richmond Road, Residency Road and Lavelle Road witnessed closure of a few mid sized transactions with absorption recorded at around 50,000 sq ft (primarily in the second generation space). Due to limited Grade A supply being available during this quarter, rental values increased by 5 - 6%, q-o-q.With no fresh supply coming in the Extended Business District (EBD) of Indira Nagar,Koramangala, Old Madras Road, CV Raman Nagar in the near term, most of the companies are either expanding within the existing micro market in the limited sublease space that is becoming available or relocating to peripheral markets such as ORR,Whitefield, etc. Lack of Grade A supply in the EBD has

led to increase in rental values (7-8% q-o-q), predominantly in the second generation office space.

The commercial development in the South Bangalore micro market of Bannergatta Road, JP Nagar, Jayanagar and Mysore Road is limited to Grade B buildings with no new Grade A buildings likely to come in the near future. Rental values appreciated by 7 - 8 % on q-o-q basis.

The Peripheral Business District (PBD) of Outer Ring Road (ORR), Whitefield, Electronic City and North Bangalore are being preferred by corporates looking for consolidation and expansion plans. As most of the projects nearing completion or under construction have already been pre-committed on the Outer Ring Road (ORR) stretch, rentals are witnessing

an upward trend owing to lack of ready to move in space; and values appreciated by 4 -5 %, q-o-q.

Approximately 0.41 million sq ft of office space was released into the Whitefield and Electronic City micro markets, whilst absorption was estimated at around 0.4 million sq ft. Due to availability of ready to move in quality space and landlords offering favorable commercial & leasing terms, this micro market remains the favored destination for corporate occupiers. Rental values increased by 6-7% during this quarter. North Bangalore micro market also continued to find favor from some of the occupants; around 0.85 million sq ft of Grade A office space was leased in one of the large projects in this micro market during this quarter.

What Makes Bangalore Tick

What Makes Bangalore Tick

The city has been notching up robust absorption levels in commercial property consecutively for years together

India's Silicon Valley continues to retain the top slot in terms of largest volume of commercial space absorption year after year in the country.Whether it is setting up of a new unit or expansion of existing operations of IT/ITES companies,the overriding priority is for the garden city.Though belated,infrastructure development has been sending green signals to companies though it continues to remain a key challenge for the state government.

According to industry sources,the city has absorbed over 5 million sqft of commercial space for the first half of this year.This is the largest volume of absorption reported by any city in the country so far.

What makes Bangalore tick The city is home to over 2000 STPI registered companies and employs over 0.5 million people which is 1/3 of the total IT professionals in the country.A pro-active state government is focused towards promotion of IT/ITES and first to formulate the millennium BPO policy and IT policy.The government has also taken up the task of promoting IT as one of the five top priorities by constituting a national task force on IT and software development.The pensioner's paradise has attracted 4 Fortune-500 companies and 11 companies with a turnover of over US$1billion in just one year.In fact Bangalore is the only city in the world where 2.5 lakh HR professionals are working.Even Silicon Valley could not match this meritorious record. 

In a survey conducted during the property shows across US,Bangalore has notched up the top slot in terms of demand for investment in real estate by returning NRIs.This is one reason why there has been a consistent demand for office space across micro markets in the city year after year.

Commercial property absorption levels have gradually picked up now across all micro markets in the city.In fact there are no ready to occupy spaces available in some of the key micro markets like Sarjapur outer ring road.This has necessitated corporates to look at Whitefield where supply exceeds demand.In the extended business districted (EBD),pre-commitments are common even before the existing clients vacated the premises

Incidentally the demand has picked up not only for SEZ premises but for non-SEZ premises as well.This has convinced developers to launch new projects due to surge in demand for office space and for BTS units.

With the shrinking supply level on outer ring road and CBD areas,the only alternative for occupiers is to look at electronic city and Whitefield,according to realtors.This is because of the current vacancy levels at 4 million sqft in Whitefield and 1 million sqft in electronic city."While rental levels have increased marginally by 10 per cent in CBD and outer ring road areas,they are relatively stable in electronic city and Whitefield",said Neeraj Shetty,director,City Info Property Services Pvt Ltd.

Among the larger occupiers who have committed space,specific mention must be made about companies like Cisco,Accenture,IBM,Cognizant Technology,J P Morgan,Bosch,Wells Fargo,Volvo,Mercedes-Benz,Ernst & Young,PricewaterhouseCoopers India,KPMG,Airbus and Oracle.This is apart from Indian companies like TCS,Huawei Technologies and Schneider Electric.

With the continued expansion of existing operations due to the overall economic growth,property consultants feel that the city will see improved intake of office space in the next two quarters this year.
At the same time industry sources feel that if the government is keen to retain the city's numero uno position in driving the IT/ITES companies to its fold,it is essential that efforts should be made on war footing to improve the infrastructure development in the city.It is expected that things will improve once the under pass and flyover will get ready along the ring road for smooth flow of traffic.

Bangalore metro is a boon for realtors

City’s real estate giants have set their sights on the Namma Metro route map. With the mass rapid transit soon to begin its operations from Byappanahalli to MG Road, the demand for land has increased and the prices of property, along the Metro alignment, have skyrocketed to a whopping 15%.

Besides Ramamurthynagar, Kasturinagar, Banaswadi, Indiranagar, CMH Road, Halasuru and MG Road, real estate biggies are exploring options around Jayanagar, RV Road, Malleswaram, Yeshwantpur, Peenya, Magadi Road and Mysore Road, where the Metro network is expanding.

“Ever since the Metro work began, realty business has seen a 10% to 20% growth,” said Ganesh Vasudevan, vice-president and business head of indiaproperty.com, a web-based real estate agency.

Karun Varma, MD, Jones Lang LaSalle, said, “Areas, like Madivala and Whitefield, have seen massive real estate activities. Metro would come as a huge relief, connecting the north-south-east-west corridors of the city.”

Both Vasudevan and Varma hinted that a number of MG Road and central business districts are coming up in the city, making it more opportune for both Metro and the real estate business as a whole.

Bangalore Office Market Overview 1Q 2011

Bengaluru (Bangalore)

• About 75,000 sq ft of new office space was added to the Grade A office market in 1Q

2011. Approximately 115,000 sq ft of Grade A office space is expected to complete in

2Q 2012.

• The market saw sustainable rising leasing activities during 1Q 2011. Demand was

predominantly underpinned by the IT/ITeS and financial sectors. The average Grade A

office rents increased by about 3% QoQ in 1Q 2011.

• In view of rising demand and positive market sentiment, developers started to launch

new commercial projects. Projects launched in 1Q 2011, including Brigade Rubix, Prestige

Exora – II&III, and  Alyssa, will contribute about 2 million sq ft of floor area to the total

stock upon completion by end-2012 

(Teri) has come forward with a proposal to develop a 60-acre botanical garden near the Bengaluru International Airport on the lines of UK’s famous Kew Botanical Gardens

In Bangalore, periphery is the new centre

New space: Whitefield has seen several office properties coming up of late.

There has been an increasing trend of companies in Bangalore to relocate to peripheral markets such as Outer Ring Road (ORR) and Whitefield due to ready availability of large space.

Whitefield and ORR areas are favoured destinations for long-term commitments by corporate houses. This development is coming at a time when the corporates are looking at long-term expansion or to pursue their consolidation plans.

Prominent companies moving in to peripheral areas are TCS, Cognizant Technologies, NDS, Huawei Technologies and Infinite Computer Solutions.

The peripheral market witnessed closure of a few mid-sized transactions with absorption estimated at 700,000 sq.ft during the first quarter of 2011. Electronic City and Hosur Road witnessed only marginal leasing activity during the quarter. International property consultant CB Richard Ellis attributes this movement to peripheral markets to lack of Grade-A supply in the extended business district (EBD).

EBD areas are Indiranagar, Koramangala, Old Madras Road, CV Raman Nagar, Bannergatta Road, JP Nagar, Jayanagar and Mysore Road.

The peripheral areas saw almost 1.6 million sq.ft of fresh IT space. The ORR market saw absorption of almost 620,000 sq.ft. As most projects near completion or under construction have registered healthy pre-commitments on the ORR stretch, rentals have shot up 4-5 per cent. With all these activities happening in EBD absorption stood at 250,000 sq.ft.

“The lack of Grade-A supply in the EBD led to increase in rental values by almost 9 per cent on a quarter on quarter basis, predominantly in the second generation office space,” said a report by property analyst CB Richard Ellis.

With no fresh supply in the Extended Business District in the near term, most companies have plan to relocate to peripheral markets. “Technology sectors, the major driver for absorption in Bangalore, continue their location and expansion in their chosen clusters of Outer Ring Road and Whitefield. However, most of the larger commitments have come about in the Special Economic Zone developments in these locations. A number of other sectors continue to show good absorption and have chosen to make commitments in the various parts of CBD (Central Business District) and the various secondary business district (SBD) of the city,” said Mr Shivaram Kumar Malakala, Executive Director, Habitat Ventures.

As for the other areas, lack of supply in the south Bangalore market of Bannergatta Road, JP Nagar, Jayanagar and Mysore Road continues to pose as a deterrent for occupiers planning to set up their operations in this location. “Office space development in this market is limited to Grade-B buildings with no new supply of Grade-A space expected in the near future. Absorption was recorded at around 120,000 sq.ft; rental values appreciated by almost 14 per cent on a quarter on quarter basis,” explains CB Richard Ellis.

The CBD of MG Road, Richmond Road, Residency Road and Lavelle Road witnessed an increase in number of enquiries from corporate houses preferring to expand within the CBD.

Prominent companies moving in to CBD/SBD areas are Swiss Re and Thomson Reuters.

While the CBD market did not witness infusion of any new supply, a large number of mid-sized transactions by companies were finalised with absorption recorded at around 180,000 sq.ft (primarily in second generation space). Also, due to increase in demand and limited availability of Grade-A supply or expected to be made available during the current year, rental values increased by almost 15 per cent on a quarter on quarter basis.

The north Bangalore market is an attractive destination for corporate occupiers. However, it suffers from lack of quality space which hampers leasing activity in this market. High demand amid low supply led to an increase in rental values by almost 14 per cent quarter on quarter basis.