Office space on an upward trend

Talk about the office space market in Bangalore and it's a win-win situation for both suppliers and occupiers. Bangalore has done exceedingly well with respect to office space supplies and absorption compared to Delhi, Mumbai, Chennai, Hyderabad and Kolkata, and leads all the metros by over 40 percent across all micro markets. The lease transactions the city has witnessed is seven million sqft while New Delhi (Gurgaon and Noida) stood at 4.5 million sqft, Mumbai at three million sqft, Chennai at 2.5 million sqft and Kolkata at 1.5 million sqft in 2005.

Here is an overview on the current market scenario and future prospects of the city's office space segment.

Rentals

Average base rents in the Central Business District (CBD) have witnessed a marginal increase from the third quarter. The minimum base rents in CBD locations are in the range of Rs 42 per sqft to Rs 45 per sqft a 2.3 percent increase from the last quarter's maximum rental range of Rs 44 per sqft. Prime properties in the other micro markets have not witnessed any shift and remained stable. The base rents at off-CBD locations were recorded in the range of Rs 38 per sqft to Rs 40 per sqft. Minimum base rents at locations like Indiranagar and Koramangala have remained stable and range from Rs 28 per sqft to Rs 30 per sqft. Base rents at peripheral locations like Electronic City and Whitefield (excluding ITPL) continue to be in the range of Rs 22 per sqft to Rs 25 per sqft. The minimum base rents in ITPL have inched up marginally from Rs 45 per sqft to Rs 46 sqft.
Vacancy rates

Current vacancy rates in Bangalore are approximately down to sub five percent levels. Vacancy rates in Bangalore have been witnessing a steady decline over the last few quarters mainly on account of short supply prevailing in off-CBD, suburban and peripheral locations.

Demand

The fourth quarter of 2005 witnessed an overall space absorption of approximately 2.6 million sqft, a massive increase as compared to the third quarter, where the absorption level was 1.6 million sqft. The levels have grown higher than what was recorded in the first quarter of 2005 (one million sqft).


Supply


The fourth quarter of 2005, witnessed approximately 5.8 million sqft in supply, across all micro markets in Bangalore, which included a number of pre-committed deliveries. The off-CBD location accounted for approximately 0.2 million sqft of fresh addition. The suburban and the peripheral locations however remained the most active in terms of real estate development. The peripheral locations witnessed approximately two million sqft and the suburban locations over 3.5 million sqft the highest infusions across all markets.

Values


Capital values across all micro markets have witnessed upward movements. The maximum capital value in the CBD locations in the fourth quarter increased by approximately 2.3 percent and is recorded at Rs 4,500 per sqft. The capital values in the CBD are currently in the range of Rs 4,000 per sqft to Rs 6,500 per sqft. The values in off-CBD locations also witnessed an increase in the maximum capital value by approximately 5.3 percent. The suburban locations recorded approximately 16.7 percent increase (over the last quarter values) in the capital values riding on the consistent demand. The values in the suburban locations are currently recorded in the region of Rs 3,500 per sqft. The capital values in peripheral locations witnessed an approximate increase of 4.5 percent (over the last quarter values) and currently range between Rs 1,600-2,300 per sqft. Capital values for ITPL are reported at Rs. 4,200 per sqft an increase of approximately five percent over the last quarter.

Outlook for 2006


The market activity, which seemed to decline during the fourth quarter, has again been evidencing a slightly upward curve. In the long term, infrastructure needs to be augmented significantly to sustain the overall attractiveness of Bangalore as a competitive IT destination. The capital and the rental values across most micro-markets continue to remain firm, after rising steadily through 2004 and 2005. Whitefield, one of the key peripheral locations continues to be a preferred location recording approximately 51 percent transactions recorded in the peripheral micro markets and is expected to increase by another 40 percent in the coming year. The Outer Ring Road, along the south-eastern and the eastern quadrant of the city also continues to be the key centers of real estate activity. With work on the international airport having started the real estate activity in north of the city is expected to become more pronounced. The government is expected to allot lands to the IT industry for their campus developments in this area. The suburban and peripheral locations continue to be the most preferred office destinations.
Strong leasing activity is expected to continue in the office market in Bangalore during the first quarter though there has been an increased level of interest in the other cities like Chennai and Hyderabad. The tech sector, including IT, ITES, and R&D will continue to be the key demand drivers of the real estate market in the city. Built-to-suit facilities will continue to dominate the new developments coming in the market due to companies preferring such facilities.

Major transactions

ABC Consultants has leased approximately 15,000 sqft of office space on Kasturba Road
HCL has leased approximately three lakh sqft of office space at Electronic City
GE Caps has leased approximately 25,000 sqft of office space at Electronic City
Northern Trust Bank has leased approximately 1.2 lakh sqft of office space on Outer Ring Road
Caterpillar has leased approximately 1.2 lakh sqft of office space in Whitefield
GMR Infrastructure has purchased approximately 1.20 lakh sqft of office space on Bannerghatta Road