Uptick in demand for office space
E-commerce sector, firms providing co-working spaces drive demand in Bengaluru with 6.5 per cent growth in six months this year
After a slump, commercial real estate is again gaining momentum in Bengaluru. Leasing activity from financial services companies and emerging sectors such as e-commerce and start-ups, coupled with strong demand from co-working space operators, have resulted in higher office space absorption from January to June this calendar year.
According to a Knight Frank report, the city witnessed 6.5 million square feet of overall leasing during the first half of this year, a growth of 13 per cent over the same period last year. Across India, the office space segment saw 21.7 million square feet of transaction, a rise of around 13 per cent on a YoY basis, in the first of 2018.
Compared to this, Mumbai saw a decline 7 per cent, though New Delhi saw a moderate growth of only 4 per cent in office absorption.
“In the first half of 2018, Bengaluru retained its top position amongst India’s top eight cities with its total leasing volume accounting for 33 per cent of share,” the report said.
Real estate developers are of the opinion that higher demand of office space is greatly driven by emerging sectors such as e-commerce and start-ups along with co-working operators.
“New economy businesses such as e-commerce have also been one of the driving factors for the increase in commercial real estate. With more co-working players coming into the industry, the commercial real estate has seen increased investor activity,” said Ravindra Pai, Managing Director, Century Real Estate.
In the first half of 2018, coworking operators doubled their absorption of office space at 1.27 million square feet, 19 per cent of the total pie.
“We have done a deal with almost every major developer in the country. We have leases with Prestige in Bengaluru, Oberoi in Mumbai and are doing two deals with DLF now. I am now not just a tenant and am bringing more business to developers. We may start with two floors, but might end up taking another four floors because that’s the kind of demand we have been witnessing,” said Karan Virwani, Director at WeWork India, had told Business Standard in a recent interview.
Though the Bengaluru market has seen an uptick in office space absorption, the supply addition was far too short of the demand, resulting in dip in overall inventory level.
According to the Knight Frank, the overall vacancy in the city’s office market dipped to 3.5 per cent in the first six months when compared with the year ago period.
While the city absorbed 6.5 million square feet of office space in H1, only 3.7 million square feet of space was added during this period. This has resulted in increase in rentals by around 17 per cent in Bengaluru, the report added.
Realtors also believe that the demand uptick is sustainable in the short to medium-term. “Commercial real estate will continue to do well as there is not much supply,” Pai said. The real estate firm plans to invest around ~10 billion in coming years in the commercial real estate space.