Bangalore closes in on Shanghai in office space

The city’s office stock has grown over five-and-a-half times in the past four years.

Bangalore is closing in on Shanghai, China’s booming commercial and industrial metropolis, in terms of Grade-A office space.

The surprise doesn’t end here. India’s Silicon Valley has already overtaken Singapore in this regard, says global property consultant C B Richard Ellis (CBRE). Grade-A offices mean centrally air-conditioned, well maintained, efficient buildings.

Bangalore’s office stock has grown over five and a half times in the past four years, to 80 million sq ft. That has meant Grade-A office space there is now just 14 per cent less than Shanghai’s.

Latest CBRE data show Mumbai and the National Capital Region together have just 13 per cent more office space than Bangalore. “Except 2008-09, there was robust growth in IT (information technology) and there was a quite a bit of absorption by IT companies. FDI (foreign direct investment) in properties after 2005 added to the office supply,” says Anshuman Magazine, chairman and managing director, CBRE, South Asia.

IT/ITeS (IT-enabled services) account for nearly 80 per cent of the total office space absorption in the country.

“Even in the worst of times, Bangalore saw an absorption of six to eight million sq ft a year. In the best case, it was 10 million sq ft. For every 10 million sq ft Bangalore absorbed, the second best, NCR, absorbed only 6-7 million sq ft,’’ says Gulam Zia, national director, research and advisory services, Knight Frank India.

Vacant space, too
Even so, Bangalore also has the highest vacancies in office space in volume terms. In fact, at 12 million sq ft, the city has the largest vacant office space in the Asia Pacific. Mumbai and the NCR each have over 10 million sq ft of vacant space, while Shanghai has about 10 million sq ft in this category.

“In between, markets went through a slowdown and IT was the last one to recover,” says Ashok Kumar, managing director, Cresa Partners, an international realty services firm.

Whitefield, a IT office hub on Bangalore’s outskirts, has five to six million sq ft of vacant space, around half of Bangalore’s total vacancy, said a property developer from Bangalore, who did not want to be identified.

Experts say the main reason why Bangalore has been rising fast is the comparably lower lease rentals. For example, Zia says, since IT firms need large offices at Rs 30-50 a sq ft per month, Bangalore fitted the bill with huge tracts of land at lower prices. “Even the cheapest Grade-A office in Mumbai comes at Rs 125 a sq ft,” he adds. Mumbai is the fourth most expensive office market in the world.

Though Delhi’s satellite cities of Noida and Gurgaon offer rents at Rs 40-45 per sq ft a month, IT firms prefer Bangalore, as it offers superior manpower, says Zia.

Pressure on rents
Nitesh Estates’ chairman, Nitesh Shetty, says rents in Bangalore’s Central Business District, which had fallen 10-12 per cent last year, have recovered in recent quarters. “Though the rents are going up in the CBD due to the upcoming metro and new hotels, there will be pressure on rents in suburbs,” he says.

So, too, in Mumbai. CBRE’s report says Nariman Point and Bandra Kurla Complex, two of Mumbai’s main business hubs, may witness a rise in rents in the coming year. However, areas such as Worli, Lower Parel and Parel in central Mumbai and suburbs such as Malad, Thane, Powai and Navi Mumbai are expected to see marginal increase or stability in rents, due to large supply and higher vacancies.

“It will take 12 to 15 months to absorb the current supply. Till that time, I do not think rents will increase,” says Kumar of Cresa Partners.

Magazine of CBRE says there is a possibility that the NCR would overtake Bangalore in the long term, since places such as Noida, Gurgaon, Greater Noida and others are coming up with large supply.

The CBRE study also says the top seven Indian cities added 280 million sq f of office space in the past few years, as against 297 million sq ft added by the four Asian tigers of Shanghai, Singapore, Hong Kong and Seoul together.

“It clearly suggests that we are reaching a critical mass in real estate. Compared to the size of our country, the size of real estate is really small now,’’ Magazine says.