APPD Market Report Article
BengaluruFebruary 28, 2023
Dr Samantak Das, Executive Director and Head of Research & REIS, India & Sri Lanka
Net absorption for 2022 reaches 9 million sq ft
- While net absorption dropped 30% q-o-q due to a few large exits, 2022 recorded a 15.8% y-o-y increase, with net absorption rising to 9 million sq ft. Net absorption was up y-o-y in all the key submarkets like CBD, SBD and Whitefield, with over 47% growth recorded in the latter two. Key tenants that leased over 200,000 sq ft in the quarter included WeWork, Tablespace and American Express.
- The IT/ITeS sector led the demand momentum in the quarter (48%), followed by the co-working sector (25%). Whitefield outperformed all other submarkets as it saw a q-o-q rise in net absorption by over 400%. This submarket experienced healthy momentum due to ample availability of high-quality assets at affordable prices and the upcoming metro line, which is set to complete in 2023.
Pre-commitment rate of 51%; 13.3 million sq ft complete in 2022
- The Q4 supply increased by 67% q-o-q with 2.7 million sq ft coming on stream. Four new buildings were completed, including Nucleus Tech Park – Building 2 and RMZ Ecoworld – Block 31 in the SBD submarket. Sumadhura Capitol Towers and Bagmane Solarium Argon – South were completed in Whitefield. Overall city vacancy stood at 12.1% at end-2022.
- Whitefield led the quarter not only in terms of demand but supply as well. About 2 million sq ft of supply was recorded there in Q4, while 1.4 million sq ft came on stream along the Outer Ring Road micro-market. Overall in 2022, SBD saw total completions of about 9.3 million sq ft, Whitefield about 3.8 million sq ft and CBD close to 0.3 million sq ft.
Rents on an upward trajectory, up by 0.8% q-o-q and 3.6% y-o-y
- Overall rents increased marginally q-o-q as developers remained cautious towards occupier appetite. SBD experienced the highest surge of 0.6% q-o-q, followed by CBD at 0.5% q-o-q. Overall, Bengaluru’s rents are on an upward trajectory as several MNCs and IT companies in the city continued with their occupancy decisions while recalibrating their future work plans.
- Bengaluru’s overall rent stood at INR 85.9 per sq ft, per month, translating to slightly more than a US dollar. Several key submarkets in the city still remain below this threshold, which acts as a catalyst for enticing foreign companies to expand in the city, as the office ecosystem provides high-quality assets at reasonable prices along with skilled human resources in ample quantity.
Outlook: Bengaluru office market linked to global economic sentiment
- In 2023, around 14 million sq ft of supply is expected with projected absorption of close to 10 million sq ft. The vacancy rate is expected to remain around the 13% mark as certain exits are expected, resulting from lease expiries and relocation/consolidation efficiencies.
- Overall rents are set to rise by around 2.5%-3% y-o-y by the end of 2023, with newer supply set to enter the market at rates better than the market average. Several projects in CBD and Outer Ring Road already have pre-commitments at rents marginally higher than the market average. Yields are likely to compress, driven by quality projects in high demand from institutional investors.