APPD Market Report Article

Bengaluru

May 31, 2022

1.9%

INR 96

Rents
Rising

Net absorption at 1.7 million sq ft in 1Q

  • Net absorption fell by 31% q-o-q, and was lower by 30% y-o-y. The first quarter of every year usually begins slowly in the city, and around 1 million sq ft of leases were in their final stages of closure as the quarter ended, supporting the higher absorption numbers in the next quarter in Bengaluru. SBD accounted for 76% of the net absorption followed by Whitefield with a 22% share.
  • New completions in 1Q22 were pre-committed to the extent of 22%, which aided net absorption in the quarter. Key occupier segments driving demand this quarter included IT/ITeS with 45% share of the leasing activity, followed by the flex segment with 24%. Flexible workspaces are emerging as a real alternative to conventional office space in the city with around 4,700 seats taken up this quarter.

New completions recorded 4.6 million sq ft in the quarter

  • Nine new buildings totalling 4.6 mn sq ft were completed this quarter, resulting in the city’s total office stock moving to 183 million sq ft. The SBD, specifically the ORR, accounted for a 48% share of the new supply, with 37% of the completions in Whitefield. The quarterly supply was up 89% q-o-q. Some key new completions were by leading developers like Bagmane and Salarpuria Sattva.
  • Among the new completions, Legato had pre-committed 500,000 sq ft at Bagmane Solarium City Xenon – South block. In some of the other new completions, like Vaishnavi Tech Square, Bagmane Solarium City Xenon – North block, new leases were recorded as well. However, projects like Kalyani Roshni Arcade, SJR Union City remained vacant, pushing the city vacancy to about 11.4%, a rise of 140 bps q-o-q.

Average office rents increase to INR 83.7 in 1Q22

  • Rents in the city increased by 0.6% q-o-q and 1.9% y-o-y as space queries have begun to pick up pace post-COVID-19. With office occupancy slated to rise from April 2022 and cost of construction and maintenance rising with input material cost surges, rents are also steadily picking up. Overall market yield in the city compressed by 10 bps to 9.1% in the quarter, backed by active investor interest.
  • Rents increased the most in Whitefield at INR 56.1 per sq ft, per month, a rise of 5.8% y-o-y. SBD witnessed rent growth of 0.6% q-o-q to INR 95.8 per sq ft, per month. While market yield in the CBD remained stable, it compressed by 10 bps q-o-q across all the other submarkets.

Outlook: Market to see strong supply paired with healthy demand

  • Bengaluru is expected to see a strong supply pipeline of 12.3 million sq ft in 2022, if construction activity stays on track. Upcoming projects include ones by leading city developers like Bagmane, Prestige and DivyaSree. Out of the 7.6 million sq ft of completions expected this year, 70% is already pre-committed by occupiers like Deloitte, Amazon, etc.
  • Demand is set to be within 9-10 million in the next 12 months. Bengaluru’s vacancy rate is expected to remain steady between 11-12% as developers remain bullish on completing projects in the city. A slight rise in vacancy might result in the surge of rents remaining in check, though high-quality projects would continue to command a premium.

Note: Bengaluru Office refers to Bengaluru's overall Grade A office market.

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