BENGALURU: The office space crunch in the country’s tech capital has prompted a top developer to acquire an upcoming luxury hotel project to expand its business park. RMZ Corp is acquiring, in what would have been, Bengaluru‘s second Shangri-La hotel for little over $100 million (Rs 700 crore) to build an additional 2.5 million sqft office space in the city’s IT suburbs, people familiar with the matter said.
RMZ has struck a deal to buy the 15 acre hotel project, adjoining its Ecoworld business park on Outer Ring Road, from rival Adarsh Developers. Qatar Investment Authority (QIA), an investor in RMZ, is funding the transaction signalling the robust appetite for rent yielding office properties, which count the tech units of marquee global corporations as tenants. RMZ is expected to pull down the structure substantially for office space development.
Hong Kong-based luxury hotels group Shangri-La said last year that the new hotel was scheduled to open in December 2016 with around 300 guest rooms and suites. The Asian hospitality chain already operates a 19-storey, 397 key hotel near the city centre, while the second one was to be named Shangri-La Palm Retreat.
Another large commercial developer, Embassy Group, and Singapore’s Ascendas have also clinched land deals in recent months to expand office portfolio in north Bengaluru that’s emerging as an alternative business hub. The latest deal making could see RMZ Ecoworld taking its leasing potential to 10 million sqft, rivalling Manyata Tech Park of Embassy as the city’s largest work destination. RMZ vice chairman Manoj Menda and Adarsh Developers CMD B M Jayeshankar were not immediately unavailable for comment.
In the June ended quarter, Bengaluru’s office rentals spiralled as vacancy rate dropped to 3.4%, much below the desired 10% in a stable market. This is continuation of the trend that was seen last year, when the city recorded its highest leasing activity of about 14 million sqft. Bengaluru has a total stock of 96 million sqft Grade-A office space today, according to independent property consultancy JLL.
The strong office leasing market in Bengaluru — along with Pune and a recovering Hyderabad — is a contrast to the otherwise sedate real estate story in the country. While residential property market is in disarray, even commercial space activity is yet to mirror the GDP numbers. The office leasing market in the software exports, or broadly offshoring, led cities have broken away from rest of the country for some years now. This has made cities like Bengaluru an attractive investment bet for sovereign wealth managers and global pension funds searching for long term stable yields in commercial real estate.