Bangalore set to score a office space century
Bangalore’s metamorphosis from ‘Garden City’ to India’s ‘Silicon Valley’ has been remarkable. The tremendous growth of the IT / ITES Industry has revolutionized the residential real estate and retail markets, and triggered massive infrastructure development. The availability of high quality, large office spaces at sub–dollar rental levels (providing lower operational costs), access to a large skilled workforce, the growth of the retail and residential markets and Bangalore’s cosmopolitan culture have worked in the city’s favour, making it a preferred destination.
Now Bangalore is all set to reach a new milestone in its growth story – the office real estate stock (Grade A occupied and vacant office space) is expected to reach 100 million square feet by 2016 – 17. In 2009-‘10, Bangalore’s commercial real estate stock was approximately 50 million square feet, which will be doubled in a span of just 7 years.
What does this mean for Bangalore? It’s not merely a statistical milestone – the implications are manifold, ranging from physical infrastructure development to job creation. It also impacts Bangalore’s residential and retail development. The addition of approximately 30 million square feet to the existing stock translates into an addition of around 300,000 jobs over the next 4 -5 years. The growth in employment will lead to a rise in disposable incomes and therefore consumption. Increase in consumption will further drive the growth of the retail and residential property sectors.
Residential units being one of the most favoured traditional investment options, a rise in income could mean an investment in second homes for many households. The growing urban aspirational middle class enabled by increasing disposable income and coupled with the opening up of FDI will revolutionize the retail sector’s growth in Bangalore.
Bangalore has been pivotal in providing equilibrium to the Indian real estate sector in terms of a healthy commercial leasing market, stable residential market and a growing retail market. Driven primarily by the IT/ ITES Industry, Bangalore’s office market has witnessed a steady growth rate (CAGR of 12% from 2008 to 2012). In 2012, the leasing activity in Bangalore’s office market ensured vacancy levels of less than 10%, which is below the national average of approximately 15%. As large occupiers continue to relocate, consolidate and grow, the trend will persist with vacancy levels ranging between 10-12%. This translates into almost 90 million square feet of cumulative occupied office space by 2016-‘17.
Bangalore’s residential market usually mirrors its office market trends and is driven primarily by end users. A growing office market indicates optimistic employment trends, stability in income and supports the growth of residential market. At a rough estimate, an addition of three square feet is made in the residential market for every additional square foot of office stock. With an addition of 30 million square feet to the office market, roughly 90 million square feet (or around 65,000 units at 1400 square feet per unit) are expected to be added to the residential market.
Bangalore’s residential property market has been resilient, with capital values having increased by 25% since the trough in mid-2009. Most of Bangalore’s unsold stock is just 12–15 months old. Though absorption is currently skewed towards the Rs. 3000–7500/sq.ft. price band, there is significant momentum in the sale of units priced at Rs. 7500/sq.ft. and above. The upcoming supply in this category of homes is a clear indication of this trend – Bangalore is already a Billion Dollar Market (link) in terms of super-luxury residential property. The growth corridors of Outer Ring Road, Whitefield and North Bangalore will maintain high activity levels.
Retail development is an embedded part of Bangalore’s urban landscape – and with the sustained rise in the disposable income levels, Bangalore’s retail industry has undergone a revolution. Value, lifestyle and luxury malls have cropped up in diverse micro-markets of the city. In fact, Bangalore’s retail market is in the growth phase, with retail space stock comprising of grade A multi-tenant malls currently accounting for around 8.5 million square feet, of which approximately 7.5 million square feet are occupied.
To cater to the anticipated increase in demand triggered by the growth in the commercial segment, about 18 malls are currently in varying stages of planning and construction across Bangalore. By 2016-‘17, this stock is expected to cross 15 million square feet – meaning an addition of around 7 million square feet over the next four years.
All in all, Bangalore has the potential to grow into a megacity that will have increasing global significance. The city’s potential growth also translates into additional requirements in terms of power, water and transportation infrastructure. To compete as a potential destination, it is imperative that Bangalore’s infrastructure requirements be addressed efficiently and effectively with a long term perspective. A lackadaisical approach to this significant aspect could cause occupiers to start seeking alternate destinations.
The author is MD – Bangalore & Kochi, Jones Lang LaSalle India