Office space market slows down

The global financial crisis and non-continuation of Software Technology Park of India (STPI) Act has taken its toll on Bangalore’s office space market.

The impact has seen the city’s office space absorption drop by 41.11 per cent to 5.3 million square feet at the end of third quarter (Q3) of this year as against nine million square feet absorbed same time last year.

“The space absorption in Bangalore has dropped quarter on quarter this year and clearly the economic slowdown in the global markets has left a mark on the Bangalore office sector,” said Ram Chandnani, deputy managing director-South India, CB Richard Ellis, an international real estate consultancy firm.

“With the STPI benefits also coming to an end soon, the next wave of developments in Bangalore is expected to be in Special Economic Zones (SEZ) spaces,” he added.

Acknowledging that space absorption has slowed down in Bangalore, Farook Mahmood, managing director, Silverline Realty, said ,“The slow down in space absorption is not as bad we thought. But, local companies (both domestic and foreign companies which already have presence in the city) are busy expanding. Deals are taking time, but it is happening.” 

The Central Business District (CBD) in Q3, saw 140,000 square feet absorption and out of this only 18,000 square feet was leased in new developments and the remaining was taken up in second generation space (old upgraded buildings). 

“The space absorption has been hit also as a result of companies downsizing most of their operations, this quarter was marked by significant amount of Grade-A space in prominent developments being released for sub-leasing. As for the rentals and capital values, it has remained stable,” said Ram Chandnani.

Major CBD transactions in Q3 were that of Nokia Siemens Networks taking up 57,000 square feet, Elbit 25,000 square feet, Vikram Logistics 14,000 square feet, Tata Capital 13,500 square feet and Accenture 13,000 square feet.

In non-CBD areas of Indira Nagar, Koramangala, Old Madras Road and CV Raman Nagar about 550,000 square feet of committed space was released in Q3 and this has eased the supply situation and about 495,000 square feet of space has been absorbed in this market out of which most of the transactions were in the range of 8,000 square feet to 30,000 square feet. 

As for the rental trends, this market remained stable.

Major leasing transactions in non-CBD in Q3 were Yahoo 285,000 square feet, Aircell 31,000 square feet, Boeing 15,735 square feet, Tata Tea 13,500 square feet, Herman Miller 8,800 square feet, L3 Communications 4,700 square feet, Tyco Electronics 3,000 square feet, I-Gate 50,000 square feet, Next Edge 13,000 square feet, isg Novasoft 17,000 square feet and Nortel 18,000 square feet.

South Bangalore witnessed limited office space absorption in Q3 and witnessed few deals like Yos Technologies taking up 9,000 square feet and Metlife 4,400 square feet.

In the peripheral business district (PBD) like Whitefield and Electronic City, absorption was to the extent of one million square feet of new supply. 

The availability of large Grade-A space and good connectivity to the international airport via the outer ring road (ORR) was the major factors that contributed for space absorption.

Prominent Q3 leasing transactions in PBD are Photon Infotech 25,000 square feet, Adidas 13,000 square feet, Movik 5,000 square feet, Quinnox Consultancy 132,000 square feet, Income Tax Department 50,000 square feet and CGI 67,000 square feet.