APPD Market Report Article
BengaluruDecember 1, 2021
Net absorption recorded 1 million sq ft
- Close to 900,000 sq ft of leasing activity was recorded, along with new completions, which came on-stream with 244% pre-commitment levels. As a result, net take-up of about 1 million sq ft was recorded in 3Q21, after also factoring in exits of about 99,000 sq ft. Net absorption was lower by 47% q-o-q and 63% y-o-y.
- Flex-space providers emerged as the leading demand driver, accounting for about 48% of office leasing activity followed by the manufacturing/industrial sector with a 20% share and IT/ITES contributing 14%. Additionally, 6,000 seats were leased in flex space/managed offices by leading occupiers during the quarter.
New completions in 3Q21 deliver 2.3 million sq ft
- Five new buildings were completed in the quarter, taking Bengaluru’s total Grade A basket to approximately 156 million sq ft, after factoring in a few stock withdrawals due to building downgrades. About 1.8 million sq ft of completions were recorded in the SBD submarket followed by 0.3 million sq ft in CBD and 0.2 million sq ft in Electronic City.
- New completions dropped by 56% q-o-q and 52% y-o-y. Market activity in the city remained stable, even as there were active RFPs totalling about 11 million sq ft, indicative of a robust demand pipeline. New supply paired with lower net absorption resulted in vacancy rising by 70 bps q-o-q to 10.8% in 3Q21.
Rents up by 0.9% q-o-q
- Most developers in the city retained existing rental rates and only provided help to occupiers in the form of longer rent-free periods or discounts on CAM and parking charges. The city’s overall rental rate rose by 0.9% q-o-q and 2.6% y-o-y, largely driven by the new completions coming in higher than their respective-market averages and some increase in select developments.
- Bengaluru’s overall capital value increased by 1% q-o-q and 5.9% y-o-y. Market yield remained at 9.3% and one sales deal was observed in the city. Local gaming firm, Gamekraft Technologies, bought INR 1,300 million worth of commercial property in the city, spread across 121,000 sq ft at SBD Outer Ring Road submarket.
Outlook: Growth in Bengaluru office market to be positively aligned
- Additional supply of 1.7 million sq ft is expected by year-end, which will add a total of 13.5 million sq ft to the existing basket in 2021 alone. This will take Bengaluru Grade A stock to about 160 million sq ft by end-2021. Net absorption of close to 7.1 million sq ft is expected for 2021, considering the project pipeline, pre-commitments and ongoing enquiries in the market.
- Vacancy rates are set to remain within a 10-12% range. Overall rents in the medium term are expected to grow by 1-2% y-o-y. Due to the presence of high-quality Grade A assets and REIT properties in the city with strong tenant mix, rents will be on an upward trend going forward. Market yield is expected to shrink by 10 bps within the year and investor sentiment is set to remain positive.