Share of IT sector in Bangalore office space market falls sharply

Share of the IT/ITeS sector in Bangalore office space market has fallen to 54 per cent in first half (H1) of 2014 from 71 per cent in second half (H2) of 2013, according to realty consultant Knight Frank India.

Absorption by the manufacturing sector increased by 25 per cent in H1 2014 over H2 2013. However, it lagged behind H1 2013 by 32 per cent. As for the other services sector, absorption has increased to 24 per cent in H1 2014 from 13 per cent in H1 2013 and can be partly attributed to the rising e-commerce sector, a Knight Frank report said.

Total office space inventory in Bangalore is around 109.5 million square feet and of this, 97.9 million square feet is occupied.

On the absorption front, during H1 2014, the city saw around 6 million square feet of leased deals, while only 3 million square feet of new projects were completed. The absorption in H1 2014 reflects a 23 per cent growth over H2 2013 and an increase of 29 per cent over H1 2013, the report added.

“The absorption in H2 2014 is expected to slacken - estimated at around 3.8 million square feet. Total absorption in 2014 is expected to be around 9.81 million square feet which will be a 3 per cent increase over the total absorption in 2013,” said Chintan Mithaiwala, vice-president (occupier solution group) Knight Frank India.

Consistent demand over the next six months will be matched by an increase in new completions of 4.5 million square feet, thereby ensuring rental vacancy to be constricted to 11 per cent by the end of 2014.

Bangalore has seen consistent absorption over the last three years, with vacancy rates dropping steadily every year. “This healthy demand in the past years has been responsible for restricting vacancy within 11–18 per cent. The vacancy level during H1 2014 was 11 per cent, down from 14 per cent in H1 2013 and H2 2013,” explained Mithaiwala.

The average size of transactions in the city has increased to 71,500 square feet in H1 2014 from 30,035 square feet in H1 2012. A similar deal sizes were experienced in H1 2013 and H1 2014. During the H1 2014 it touched the high of H1 2012 (around 75,000 square feet) in the number of deals transacted, though H1 2012 had the lowest average deal size.

Releasing the Knight Frank’s Bangalore Real Estate Report for H1, Satish B N, Executive Director-South, Knight Frank India said, “After the general elections and the budget, the conversion time between a sales inquiry and an actual sale has shortened, indicating a revival in demand. While the sales volume has improved somewhat in H1 2014, we expect it to strengthen even further in H2 2014.”