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Bengaluru Office Market: Despite COVID, 10–13 mn sq ft commercial stock to be delivered in 2020

As unlocking progresses, construction activity has resumed and office activity has increased over the past months. The upcoming metro lines that are expected to open in the next two-three years will connect the city to its airport and provide better links to the east, benefitting the main office districts

The world in 2020 while facing a global pandemic has been defined by experts as "VUCA" (Volatile, Uncertain, Complex and Ambiguous).

Despite the pandemic and the downturn across the country and the world, Bengaluru continues to dominate in office space leasing not just in India, but in the Asia Pacific as well.

This doesn’t come as a surprise as the city has been an automatic choice for several companies looking at setting up their base in India or expanding in the country. Its diverse talents and skilled workforce apart from sound policies and infrastructure have been the biggest draw for several firms all over the world.

Today, 400 out of the Fortune 500 companies call Bengaluru their home employing around 35 percent of the country’s 2.5 million IT professionals. With over 7,000 start-ups, it is considered the second-largest start-up capital in the world after Silicon Valley.

We have also witnessed strong captive growth over the years across sectors including information technology (IT), IT-enabled services, banking and finances services (BFSI) and engineering. These captives have accounted for over 70 percent of the total leasing in the city.

In 2019, Bengaluru witnessed a record absorption of around 15.6 million sq. ft. making it the largest office market in the Asia Pacific. At present, the city houses a total stock of approximately 164 million sq. ft of office stock. Despite disruptions due to the pandemic, office absorption stood at 5.3m sq. ft (YTD 2020).

As unlocking progresses, constructions have resumed while office activity has increased over the past months. Hence, we expect healthy leasing trends in the last quarter (Q4) of 2020. We also expect around 10 – 13 mn sq. ft. stock delivered in 2020 making it possible for all its occupiers to continue expanding in the city.

PrintMicro-market trends

The urban sprawl of Bengaluru expanded in concentric circles, with the CBD at the centre. However, the eastern part of the city that comprises Outer Ring Road area and other prominent office hubs like Whitefield and Brookfield remains one of the IT hotspots of the country with almost 75 percent of the city’s office space.

It has consistently shown strong office leasing growth over the years.  The Outer Ring Road covering Sarjapur Junction, KR Puram and Hebbal is a  key office market that witnessed a supply of more than 50 percent of absorption  (approximately 2.6 mn sq. ft. of 5.3 mn sq. ft ) in 2020 YTD. It is estimated that around 50 percent of the 75 mn sq. ft. stock projected to come in between 2021 – 23 will be in the Outer Ring Road market.

Below are the micro-markets witnessing steady growth:

Micro-marketsDemand drivers
Outer Ring Road

· High Captive Population

· Availability of Talent

· Largest IT hotspot in the city

· Low Vacancy

· High Demand

· Niche client profile

Central Business District

· Retail and BFSI sectors

· Customer facing offices

· Niche It Development offices

Secondary Business District

· Well-developed social infrastructure

· Limited Stock

· Higher demand, low supply & vacancy

Peripheral Business District (Whitefield and Brookfield)

· Upcoming metro

· Availability of quality space

· Proximity to residential catchment

· Self-sustaining micro-markets

· Competitive rentals

North Bengaluru

· Futuristic growth corridor

· Proximity to residential catchment

· Low rentals

· Proximity to airport

· Ample SEZ and Non SEZ supply

South Bengaluru and Electronic City

· Predominantly own campuses and standalone buildings

· Start-up hub of the city

Upcoming micro-markets

The upcoming metro line and proximity to Outer Ring Road and Whitefield have made Brookfield an emerging office hotspot for occupiers. With key developers like Bagmane, Salarpuria, Brigade, Prestige building large projects, this micro-market is expected to transform in the near term.  North Bengaluru with its ample supply and proximity to the airport will also be a long-term growth corridor of Bengaluru.

The upcoming metro lines that are expected to open in the next two-three years will connect the city to its airport and provide better links in the east, benefitting the main office districts.

The Blue Line to the airport runs alongside a newer business district – North Bengaluru. Today, this is a relatively small district. However 20.8m sq. ft. of new space is set to be delivered by 2023 (second only to the much larger Outer Ring Road district) and it is expected to benefit from its proximity to the airport.

Impact on residential real estate:

While commercial real estate in Bengaluru continues to gain attraction, the residential market initially was affected by the dip in consumer demand during the lockdown.  However, we do see a gradual increase in demand for residential projects. This is expected to grow further in the coming years as the market recovers.

Sarita Hunt
first published: Dec 14, 2020 12:13 pm