Bengaluru office market stares at space crunch, high rentals: Knight Frank

IT/ITeS sector continued to hold the fort in Bengaluru office market in H2 2016. The city is plagued with space crunch, high rentals and traffic congestion, Satish BN, Executive Director (South), Kinght Frank, has said.

In the absence of quality office space on outer ring road (ORR), peripheral business districts (PBD) in eastern part of the city (which mainly comprise Whitefield) have stepped in to cater to potential occupiers.

“Despite the large quantum of transactions, growth trend remains relatively constrained in Bengaluru due to stiff competition from other cities, primarily Hyderabad,” Satish told BusinessLine . “The growth in office space is in contrast to the residential market where demand has declined significantly. While the growth appears to be tapering, it should also be noted that the IT/ITeS sector, which is the key demand driver of the office market in Bengaluru, has matured and stands on a bigger base today, thereby limiting the scope for outstanding growth proportion,” he added.

With the office market staying positive in Bengaluru despite the recent demonetisation drive, adroitly reflected by the steady growth in demand for prime office space, the city continues to be a key office destination among global and domestic corporates.

H2 2016 also witnessed transactions at four-year high; new completions saw a sharp dip. Vacancy on a steady decline with ORR at 2-4 per cent and Whitefield at 8-10 per cent.

“Market strengthened in 2016 recording a transaction of 11.4 million square feet, highest in five years and new completions observe an increase of 12 per cent over 2015. City witnessed transactions of 5.3 million square feet during H2 2016 and new completions in H2 2016 stood at 3.5 million square feet,” Satish said.

Bengaluru continued to attract substantial occupier interest in H2 2016, the demand being driven primarily by the IT/ITeS sector, its growth and consolidation leading to transactions for large office spaces.

The sector accounted for 62 per cent of the total transactions in H2 2016, as compared to H2 2015, which had seen a whopping 70 per cent share.

“The decline in the sector’s share can be attributed to the lack of ready large office space in the market, consequently leading them to opt for pre-committed space that would be ready in 18-24 months’ time,” said Satish.

The share of the other services sector, of which the e-commerce sector is a part, has increased from 16 per cent in H2 2015 to 25 per cent in H2 2016.

While e-commerce still holds potential, there were fewer e-commerce transactions in H2 2016. BFSI 9 per cent (last year 4 per cen) and their was dip in manufacturing sector off-take at 4 per cent (last year 10 per cent).

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