By: Anshuman Magazine, CMD, CBRE South Asia
Track2Realty: Bangalore has consistently remained the preferred destination for corporate real estate occupiers in the country over the last couple of years. More recently though, our IT City outperformed itself by catapulting into the league of the top performing office markets of the Asia Pacific region during 2014—in the company of Tokyo and Shanghai.
Office leasing demand in Asia Pacific strengthened in Q4 2014, with net absorption increasing by 31% q-o-q to 10.5 million sq. ft., the highest quarterly figure of the year. This leasing activity was led by the technology and non-banking financial sectors. The most active markets included Bangalore, which accounted for 33% of all space leased in the region during Q4 2014.
Needless to say, Bangalore also led office markets among India’s leading cities in 2014. Even as corporate demand for office space touched nearly 33 million sq. ft. across India’s key office markets in 2014, Bangalore led the momentum with an overall share of nearly 35% of this total transacted space.
The city saw a 35% y-o-y rise in transactions activity during the year, together with nearly 40% increase in new office space addition. Both Outer Ring Road (ORR) and Whitefield retained their positions as the most attractive office occupier markets in the country. Moreover, the city’s Central Business District (CBD) saw a 12% y-o-y rental growth as well—the maximum annual rental rise for any major office district in India during 2014.
The trend of corporate occupiers buying high quality office space in Bangalore’s suburban markets—as opposed to leasing—continued well into 2014, because of buoyant demand and strong market fundamentals. Additionally, it was noted that corporate purchase tendencies remained towards built-up areas within established technology parks, instead of preferences for buying standalone office buildings.
Together with a number of other socio-economic factors, the relative affordability of Bangalore’s prime office districts, in comparison to the other two tier-I office markets of Mumbai and Delhi, has been a key factor in its continued preference with corporate occupiers in India. Apart from the IT/ITeS sector, other demand drivers for office space in Bangalore remained the manufacturing, banking and financial services sectors. More rational commercial property values, and abundant quality investment-grade office space at a fraction of the cost of the other major metropolitan cities is likely to see Bangalore continuing as the preferred option for e-retail firms in the country as well.
Office market outlook 2015
For the Asia Pacific region, the continued growth in business investment; expectations of revenue growth; and a solid employment market will support healthy office leasing activity in 2015. However, the fragile global economic recovery could mean that corporate occupiers will remain cost sensitive and risk-averse.
Driven by Tokyo, Bangalore and Singapore markets, office rents in the region will continue to record steady growth; although the rate of growth will slow down to 3.2% from 3.6%. Corporates will continue to be influenced by cost control, resulting in cautious expansion across the region. Focusing on long-term portfolio strategy and workplace improvement, companies are willing to consider opportunistic upgrades and activity-based workplaces.
Bangalore’s commercial office market sentiment improved in 2014, especially during the second half of the year. Coupled with an expectation of a 20–25% increase in absorption rates, this buoyant market sentiment is likely to boost transactions in forthcoming quarters. The corporate real estate trends of consolidation and expansion of office spaces in the suburban/peripheral locations of the ORR, North Bangalore and Whitefield will remain prevalent in 2015 as well.
In terms of new supply of office space in the Asia Pacific region, around 20 million sq. ft. of forecasted new supply for 2014—mainly in China and India—has slipped into 2015. CBRE expects new Grade A supply of about 73 million sq. ft. (net floor area) to get completed in 2015, a figure more than double the size of last year’s total. Around 75% of this new supply is likely to come up in the emerging markets of New Delhi, Mumbai, Bangalore, Shenzhen, Shanghai and Jakarta.
