Bangalore commercial realty perks up

Bangalore commercial realty perks up
The Hindu Business Line, December 6, 2009, Page 15

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Demand grows for space as companies restart expansion plans put on hold due to the slowdown.
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Anjana Chandramouly

The office space realty is looking up in Bangalore with the growing numbers of enquiries , say realty experts.

Corporates are re-evaluating their expansion plans that were put on hold. The early signs of this revival are being felt in the real-estate marketespecially in the Bangalore market, primarily driven by the IT and ITeS sectors with much of this demand comes from large corporates and multinationals.

According to Mr Anshuman Magazine, Chairman and Managing Director, CB Richard Ellis (CBRE), real-estate services firm, says, “Corporates have now started to seriously evaluate growth/expansion opportunities and are actively seeking out good deals in the market.”

Though some significant transactions have happened in the last few quarters; in general, “closure seems to be slow, with corporate clients choosing to deliberate and sometimes wait till they can negotiate the best possible commercial and non-commercial terms,” he adds.

During 2009, the Bangalore commercial office market adopted a cautious approach with relatively limited infusion of new space, says Mr Sumit Rakshit, Executive Director, Occupier Services at Cushman & Wakefield India. The supply forecast for the year was approximately 8 million sq.ft but only about 60 per cent – 4.8 million sq.ft was delivered up to September. The last quarter is expected to see new supply of approximately 2 million sq.ft.

Late start

The first two-and-a-half quarters of this year were bad for the commercial real-estate market. However, enquiries indicate there is demand for more than 2 million sq.ft in the Bangalore market, which is a very positive sign for the industry, says Mr Goutam Chakraborty, Regional Director, Office Leasing, Colliers International, global commercial real-estate consultants.

The year is expected to close at approximately 5 million sq.ft, thereby recording a 52 per cent drop from the absorption witnessed in 2008. “Further, most of the absorption was observed in the older vacant stock and second-generation buildings indicating sufficient available supply in the market,” says Mr Rakshit. The Bangalore commercial real-estate market also noticed various other sectorssuch as telecom and BFSIcontributing to the demand this year.

Mr M. Murali, MD, Shriram Properties says his company has been able to deliver one million sq.ft space out of the 4 million sq.ft planned in its Chennai project. Buoyed by the Chennai experience, the company now plans to “duplicate the Chennai commercial project in Bangalore, Hyderabad and Kolkata,” he says. In fact, “we plan to start work on the Kolkata project soon, and we are looking for land in Bangalore and Hyderabad,” says Mr Murali. Shriram Propertiesplans to develop about five million sq.ft of office space in Kolkata. The company might need Rs 800-900 crore for these two ventures, even if “we develop two million sq.ft in each location,” says Mr Murali.

Lease, rental values

Lease/rental values have softened by about 10-20 per cent. Most of the markets in Bangalore peaked in the second half of 2008 with the exception of the International Tech Park Bangalore in Whitefield that peaked in 2005.

According to Mr Chakraborty of Colliers International, though lease/rental rates took a beating during the peak recession time, “things have started getting better for the developers now” since there is a revival of demand for office space. “There is a stabilisation of rental values with an indication that it could head north in the near future,” he adds.

For instance, in good times, the market has seen monthly rental values of about Rs 200 per sq.ft for a few premium buildings in the central business district (CBD) and around Rs 50 per sq.ft for the peripheral business district.

In fact, there has been a stabilisation of rental values towards the latter half of 2009, says Mr Magazine “However, rentals still remain under pressure in specific micro markets of Electronic City and Whitefield due to excess supply and inadequate demand.”

More small and medium-sized transactions are expected, particularly in the CBD/Off CBD locations. Pre-commitments are likely to be less on account of significant ready supply, says Mr Rakshit, adding that Bangalore might see relatively increased activity from other sectors in the times to come. He feels the first two quarters of 2010 are likely to see reduced infusion of new supply. According to him, demand is expected to gain momentum by the third quarter of 2010, while existing projects are also likely to see accelerated pace of construction activities hereon.