Bengaluru, the IT hub of India, witnessed a net absorption of 2.7 million square feet (mn.sq.ft.) of office space during the July 1-September 30 (Q3-2020) period. A JLL research reports puts the new supply at 4.7 mn.sq.ft. as compared to almost no additions in the previous quarter, a period marked by exit of migrant labour and suspension of construction activity due to COVID-19 restrictions. JLL anticipates an addition of 1 mn.sq.ft. of office space in the next quarter of which 70% is pre-committed, it added.
The report said SBD (Outer Ring Road, Bannerghatta Road) accounted for two-thirds share of the total net absorption at 1.8 mn.sq.ft. during Q3. Leasing continued to be driven by IT and ITeS, followed by manufacturing, industrial and e-commerce sectors.
Within the city, the SBD sub-market witnessed the highest addition of 3.2 mn.sq.ft. followed by peripheral markets of electronics city and Whitefield. ORR continues to be the most sought-after location with over 60% share. The report points out that the city vacancy increased to 6.5% in Q3 from 5.3% in the previous quarter due to the combined impact of higher net supply infusion into the market and significant exits by select large occupiers. Overall rents saw a marginal rise of 1% during the quarter on the back of higher occupancies. Whitefield saw the highest jump of about 2.3% in rentals, followed by SBD and Whitefield at 1.2% each. At the same time, select developers are willing to discuss and offer extended rent-free periods, discounts on parking charges and common area maintenance charges on a case to case basis. But there is no indication of discounts on headline rents or rental waivers.
The JLL report paints a positive outlook for the city based on the sustained investor interest, pointing out that some fund management companies and MNCs Godrej Fund Management and MNCs like Blackstone and Brookfield have been actively scouting for office assets in the city.
In fact, as shown by the report, Bengaluru and Hyderabad together accounted for nearly 80% of the countrywide absorption of 5.4 mn.sq.ft. during Q3. Besides Bengaluru’s 2.72 mn.sq.ft., Hyderabad took 1.54 mn.sq.ft. “The heightened activity in Bengaluru indicates a gradual resurgence in take-up of spaces coupled with the translation of pent=up demand from Q2 this year”, the report added.
The two cities also led the increase in new completions, accounting for 87% of the total new completions in Q3-2020.
Except for Bengaluru which witnessed a marginal increase, office rents in Q3 2020 verses Q2-2020 remained stable across all markets under review. The review termed the market ’landlord favourable’ in view of the stable rental value and low vacancy levels across all principal markets in India. However, it noted that landlords have shown flexibility in providing increased rent-free period, and reduced rental escalations and have been amenable to fully furnished deals to prominent occupiers which reduces their net outgo.