Bengaluru bucks national trend of robust demand for office space

Bengaluru: Global slowdown in the information technology (IT) and IT-enabled services(ITeS) has now told on Bengaluru’s realty sector.

The city, which has been topping the absorption of commercial space, saw a 28 per cent decline in office space leasing in the July-September quarter, according to a report tabled on Monday by the property consultancy firm, Vestian.

Remarkably, new supply in the city plummeted 25 per cent to 2.7 million square feet, during the period.

Bengaluru has effectively debunked the otherwise robust trend seen with the top seven markets reporting the highest ever quarterly absorption since the Covid-19 pandemic.

Overall office space leasing in the quarter ended September 2023 rose 21 per cent year-on-year, across the seven major cities of Bengaluru, Hyderabad, Chennai, Mumbai, Pune, Delhi-NCR and Kolkata. New office space supply also, increased 26 per cent annually to 13.4 million square feet during the period under review.

The sector also reported healthy vacancy levels with an appreciation in average rentals, Vestian chief executive Shrinivas Rao said. "This showcases the robust fundamentals of the sector and a healthy demand for quality office spaces in India," he added.

With 15.9 million square feet in total absorption across the seven markets, Hyderabad led the trend, increasing its share in the overall pie to 23 per cent during the period, as against 8% in Q2FY23. 

Strikingly, though Bengaluru saw its share falling to 23 per cent, from 38 per cent in the corresponding period last year, the city accounted for the second highest absorption area during the period at 3.6 million square feet.

Vestian expects office demand in Bengaluru to improve with IT conglomerates calling employees back to office. Sudhir Pai, chief executive of property portal Magicbricks agreed. He listed a slowdown in hiring and campus recruitment by IT companies as the top reason. But he sees this as a temporary blip in Bengaluru's office market.

The southern markets of Bengaluru, Hyderabad and Chennai cumulatively contributed 58 per cent of total office leasing and 70 per cent to new supply during Q2 of FY24.

Delhi NCR also reflected a dim performance during the period with a 14 per cent y-o-y decline in leasing, at 3 million square feet. 

Occupier profile

Despite a marginal decrease of 1 per cent sequentially, the IT-ITeS sector dominated office leasing activity during the period with a 25 per cent share. The banking, financial services and insurance sector came in second, with a 20 per cent share in total absorption during the quarter.

Lastly, manufacturing & engineering and flexible space sectors accounted for 17 per cent and 16 per cent, respectively.