APPD Market Report Article

Bengaluru

August 26, 2022

Dr Samantak Das, Head of Research, India & Sri Lanka

3.8%

INR 97.7

Rents
Rising

Net absorption at 4.5 million sq ft in 2Q22 is highest since 1Q19

  • Robust occupier demand returned with net absorption surging by 147% q-o-q and 131% y-o-y, indicating strong growth momentum in the office market. A significant part of the quarterly net absorption was due to new building completions that were pre-committed to an extent of 95%. The SBD submarket accounted for 96% of the total net absorption, with the remaining in Whitefield.
  • Key occupier segments driving demand were again led by the IT/ITeS sector (39%) followed by manufacturing/industrial (19%) and flex space (18%). Large-scale pre-commitments were also observed in SBD and Whitefield submarkets by flex and BFSI tenants that will contribute to future net absorption volumes.

Six new buildings totalling 4.4 million sq ft complete

  • Bengaluru’s total Grade A basket currently stands at 185 million sq ft, showing a jump of 1.5% q-o-q. New completions in the quarter dropped by 5.3% q-o-q and 27% y-o-y. However, the demand-supply equilibrium remains intact on an overall basis. All the new completions that came onstream were in the SBD submarket, specifically at the Outer Ring Road, Hebbal and Old Airport Road locations.
  • Vacancy rate dropped by 20 bps q-o-q to 11.2%. Most of the newly completed buildings like Bagmane Rome – North and South towers, DivyaSree 77 Town Centre – Block 7, Bagmane Rio – Ohio, Embassy Tech Village – 9C were fully pre-committed in the previous quarters, keeping the vacancy rate within a manageable range.

Overall rents increase by 2% q-o-q

  • Bengaluru’s overall rents now stand slightly above the dollar mark at INR 85.3 per sq ft per month, with Whitefield and Electronic City submarkets being more affordable. With demand levels remaining intact, the city’s office market rents are experiencing steady growth. The city is expected to continue its strong performance with the current space enquiries for Grade A office remaining strong.
  • The key corridors are witnessing a flight-to-quality with premium properties continuing to command high rents. Overall market yields in the city were stable at 9.1%. Bengaluru office market continues to remain pan-India-focused as it offers world class office campuses to leading global companies at competitive rents among Tier-I cities in India.

Outlook: Bengaluru market momentum to remain steady

  • Bengaluru has a strong supply pipeline of 12 million sq ft in 2022 (including completions in 1H22). Upcoming projects include ones by leading city developers and investors like Prestige and Blackstone. Out of the 3 million sq ft expected in the rest of the year, 50% has already been pre-committed by tenants, which include Apple, Adobe and Smartworks.
  • The vacancy rate is expected to remain within the 11-12% range as developers remain bullish on project completions in the city with the return of pre-commitment activity to support the improvement in net absorption levels. Rents are expected to rise within the range of 2.5-4% in the city after a hiatus of almost two years, as the market remains developer favourable with robust demand levels.

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

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