Bengaluru To See Another Year Of Strong Office Realty Demand, Supply

Bengaluru To See Another Year Of Strong Office Realty Demand, Supply
13/05/2016 , by , in EXPERT ZONE

Bengaluru, which has a total stock of 96 million sq ft of grade-A (non-captive) office space, is currently staring at a shortfall in the supply of office space. Barely 4-5% of the total space is vacant for leasing as the tech city has witnessed strong leasing activity in the last few years. Even the existing vacancy is mostly in peripheral areas.

In 2015, 14-15 million sq ft got leased out. This includes a good volume of pre-committed space too, which will be occupied over the next two-three years. Interestingly, the trend of leasing remains strong. Although there is demand for 10 mn sq ft, supply of only 8-8.5 million sq ft non-captive office space is expected to come up in 2016.

Around 4 million sq ft were leased out by occupiers in 1Q16 alone. Compared to the total leased area in 2015, completion in the city stood at 7.2 mn sq ft last year. Bengaluru has seen a well-matched demand-supply ratio year after year. If the supply increases, the absorption could increase as well.

Occupier profile

Leasing in Bengaluru has been largely IT/ ITeS-driven. In 2015, however, a good volume of space was taken up by eCommerce firms and corporate offices of manufacturing firms in addition to IT/ ITeS companies. This is likely to continue in 2016 as well. Although space will be occupied by other sectors too, it will predominantly be the technology centres of those companies.

Interestingly, the cost-conscious start-ups are exploring non-conventional spaces like vacant houses, garages and sometimes even occupying spaces in cafes with good web connectivity. Some are also occupying affordable business centres with plug-and-play options. The need to manage costs has made start-ups come up with many innovative options in recent times.

As they grow in the future, they will take up formal office space too. As Bengaluru provides a talent pool required by tech companies and start-ups, the latter will continue flocking to the ‘tech capital’ of India. The southern city’s growing cosmopolitan environment will also attract more talent from all over the globe.

Market dynamics

Around 40 million sq ft of office space is in different stages of planning and construction. This supply is expected to come up in next five years. Most of the companies are looking for space in projects in and around the East and South-East stretch of Outer Ring Road (ORR), which stretches from Marathahalli junction to Iblur junction. However, this sub-market is slowly getting saturated and is witnessing a vacancy as low as 2%. As such, there are limited leasing options available in this sub-market for the short term.

This demand is extending further along Sarjapur Road and Hosur Road as there is limited space available in the projects along the ORR. These locations are being preferred primarily for their good connectivity with surrounding residential areas and thus, prove good in attracting talent. The next preferred location is Whitefield. Locations such as Hebbal, Mysore Road, Hosur Road and Electronic City are also witnessing good leasing.

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