'Outer Ring Road still in realty favour'

Real estate development activity on the Outer Ring Road (ORR) is showing no sign of slowing down. Almost the entire space that was built in 2005 has been committed for lease at the construction stage itself, says the CB Richard Ellis quarterly property report.

Riding on this demand, a planned 2 million square feet of commercial office space is expected to come into the market by the second quarter of this year, the report added.

Space taken up by corporates in suburban and peripheral areas in the past one year has been phenomenal. Seeing this demand developers have committed to deliver about 1.5 million square feet of space in 2006, said Ram Chandnani, head of south India operations of CB Richard Ellis South Asia.

Over 6.5 million square feet of space is expected to hit the peripheral areas in 2006. Limited supply of space in the non-CBD areas will be an important factor for growth of suburban and peripheral areas, he added.

There has also been growing interest in Bangalore's real estate among foreign private equity funds looking at lucrative investments in the newly liberalised real estate sector. According to Ram Chandnani, some of these funds have or are scanning the market and developer portfolios before betting big.

According to the CB Richard Ellis report, rental values in 2005 have witnessed an overall increase across micro markets (CBD, Off-CBD, suburban areas) by 10 per cent over 2004.

However, they are expected to remain stable in these areas in 2006. However, this upward rental movement could get arrested due to the supply that is expected to come into the market.

Capital values have also shown an upward trend in 2005 across micro markets. The increase in rentals was due to rising costs of construction and lack of availability of quality land for development.

The Central Business District (CBD) remains the most attractive for new companies entering Bangalore. The central locations offer ease of accessibility and visibility for these new companies. Approximately 1.1 million square feet of commercial office space is expected in 2006, compared to limited supply of quality space in 2005.

The off-CBD area is being observed as the most preferred location for setting up office for high-end engineering companies, R&D centres and labs as well as high-end support functions.

About 1.2 million square feet of commercial space is already expected to be completed in 2006; and a large part of this space is pre committed to lease.