BENGALURU: Office space absorption dropped in Bengaluru in the second quarter ended June, mostly due to lack of ready-to-move-in quality office space in some important micro-markets. However, the overall quarter stood out, helped by the entrance of Apple and Diageo.
Gross absorption dipped to 2.3 million sqft, from 2.75 mn sqft in the corresponding quarter last year, according to independent property consultancy CBRE. During the first six months, it was 3.8 mn, down from 4.5 mn a year earlier.
“Predominant sectors for office space take-up continue to be the IT/ITeS, BFSI, engineering and manufacturing, and e-commerce. The drop was primarily due to a constraint in supply of ready-to-move-in spaces,” Ram Chandnani, MD for advisory & transaction services at CBRE South Asia, said.
Property consultancy Cushman & Wakefield has also reported a similar trend. Bengaluru, it said, recorded a decline of 34%, to 4.5 mn sqft, in total net absorption in the first half of 2016, compared to the same period last year. Net absorption is the space leased and delivered to client for occupation with all statutory approvals. Gross absorption includes net absorption and property under development that will be delivered within 4-6 quarters.
The reasons for the difference between the estimates of the two consultancies were not clear. But, Cushman & Wakefield’s explanation for the decline was similar to CBRE’s – delays in building completions leading to restricted Grade A (top quality) supply becoming operational and lower-than-expected level of absorption of previously pre-committed space.
A majority of space absorptions ranged between 0.1-0.2 million sqft on an average across key micro-markets such as Outer Ring Road, Whitefield and Electronic City. The ticket sizes were not big as most were expansions by existing companies in Bengaluru.
Among new entrants, Apple leased about 50,000 sqft in Yelahanka for its design and development accelerator to support engineering talent and grow the country’s iOS developer community. This was a marquee addition to the city, already home to R&D centres of MNCs such as US oil major Exxon Mobil, the world’s largest retailer Walmart, lingerie retailer Victoria’s Secret, home improvement chain Lowe’s and food processing company Cargill.
Diageo set up a captive technology and back office services unit by leasing a 1 lakh sqft office space with an option to expand at Karle SEZ. Google took up additional space at the Bagmane Constellation Business Park on the Outer Ring Road.
IBM, Accenture Services, HP Enterprises and EMC – all of who have been in Bengaluru for many years – were among others who took leased fresh space during the second quarter. Tax and audit company PricewaterhouseCoopers and US bank JP Morgan too leased fresh space. While demand was led mainly by IT/ITeS companies, in the last few years, financial services companies have ramped up their presence.
“The attractiveness of the market remains strong with Indian and global companies looking at expanding their presence in the city,” Anshul Jain, managing director of property consultancy Cushman & Wakefield India, said. He expects the city to end the year with 9-10 mn sqft of absorption, similar to the levels in recent years.
Credits ET Realty