Bang for your buck

Bangalore has bagged the top spot in Indian realty space, next only to London and Tokyo. So what’s driving the trend
The Economic Times

LEASING of over nine million sq.ft of Grade A office space by corporates in 2005 has not only given Bangalore the top spot in the Indian realty space but placed it next only to Tokyo and London in the global market, according to a survey by international consultancy firm, DTZ. Bangalore's supremacy can be guaged from the other findings of this report which graded Chennai sixth with a net absorption of 3.76 million sq.ft and Delhi 11th with 2.36 million sq.ft in the list of top 20 global cities.

The 2005 performance is a 22% jump over the 7.6 million sq.ft space absorbed in 2004 by India's knowledge capital. Clearly, there appears to be no stopping Bangalore in growth and demand driven by its ever growing population of IT/BPO firms. While this in no way takes away the opportunities for real estate growth from Chennai, Hyderabad and Cochin, the other tech hubs in the south, Bangalore is by far the leader. The demand in 2006 is expected to match if not outstrip last year's numbers, subject to availability of the space, according to Juggy Marwah, vice president, RMZ Corp.

While the unabashed appetite for residential, commercial and retail space is a function of the economic prosperity shining on this region, critics are surprised that Bangalore continues to enjoy the roller coaster ride despite the infrastructural bot-tlenecks plaguing the city. Obviously, this doesnot mean that it will be a case of endless growth, the high demand appears sustainable at least for some more years.

However, with the new coalition government led by H.D Kumaraswamy promising some quick relief on the infrastructure side, growth can assume a high speed north-ward trajectory. It must be mentioned that like any other business, Bangalore has experienced its share of waves and troughs, but the downsides have been few and short.

For instance, the market in recent months witnessed marginal softening of demand and pricing in commercial space in select belts like Whitefield but the overall demand for real estate has not abated. Since Whitefield is possibly the largest tech belt in the city, builders almost went into a frenzy to develop more commercial space but the actual demand for 'non-Grade A' variety turned out to be less.

For a short while close to a million sq ft was lying unsold but the market has started to pick up again now, according to Mayank Saxena, senior manager for Trammelcrow Meghraj. As a result of this mid-term correction, developers will seek to firm up commit-ments first before pressing ahead with creating commercial space, says Jack Nazareth, director, Sobha Builders. For some time, developers built the space first before getting customers on board but this trend will change a little now which will prevent capacity from lying unused, Nazareth adds.
According to a CB Richard Ellis (CBRE) report, the rental values in 2005 witnessed an overall increase of 10% across micro markets, although it is expected to remain stable in 2006 due to the fresh supply that is expected to hit the market. The central business district (CBD) remains the most attractive for new companies entering Bangalore.

A CBRE report says that about 1.1 million sq.ft of commercial office space is expected in CBD in 2006. The non-CBD areas are being targetted by high end engineering firms for setting up their R&D outfits/ labs for high end support functions.

An estimated 1.2 million sq.ft of commercial space will be ready for occupation in 2006, and a significant share of this space is already pre-committed for lease by customers. Even the suburban micromarket witnessed sharp rise in corporate demand last year. In fact, developers are reported to have committed delivery of 1.5 million sq.ft of commercial space this year. Limited availability of space in non-CBD areas is expected to trigger growth in the micro markets. Thanks to this situation, the Outer Ring Road in Bangalore is clearly the hottest corporate destination. Almost the entire space that was built in 2005 was precommitted by customers, encouraging de-velopers to plan for at least 2 million sq.ft of commercial space in the first half of 2006.

Overall 6.5 million sq.ft of commercial space is expected to hit the micro market this year. Demand for quality retail space is also growing rapidly. In fact, customers are waiting for more retail projects to get completed. In any economy, higher GDP leads to higher disposable incomes which translates into higher consumption. It in turns triggers greater investment in creating retail space — malls and shopping cen-tres, says Suresh Shringarvelu, vice president, Prestige Developers. After success-fully developing Forum Mall in Bangalore, Prestige is now coming with a second Forum style mall on a larger scale, followed by a premium product mall in UB City in the CBD area.

Also on cards is a factory outlet mall or a mall village near Whitefield. Sigma, another developer, is creating a large mall with an independent hotel and commercial wing, all straddled together. Housing in all price bands is also in constant short supply. Even luxury accomodation, despite its sky-high pricing, is being lapped up. According to Nitesh Shetty, who specialises in luxury apartments and commercial space in central business dis-tricts and downtown Bangalore, premium top end dwellings are being virtually sold by invitation. There is a class of people, whose numbers are steadily inching up, who want an exclusive world class offering at just about any price. The audience includes NRIs in the US, UK and the Gulf and HNIs living in Bangalore and other cities who also view it as an ideal investment opportunity.

Incidentally, the price definition of a high end dwelling unit is also evolving. The changing market perception is reflected in the fact that a Rs 1-1.5 crore apart-ment/villa was considered a luxury offering 18/24 months back. Today, the super premium bar has risen to Rs 2/6 crore an apartment, and often the names are plucked out of the who's who list of India. Brigade Group is creating a 40 acre lifestyle enclave, Brigade Gateway, in Rajaji-nagar, north Bangalore, and a 36 acre enclave, Brigade Metropolis, on Whitefield Road. Between them, the two enclaves will be home to about 3000 families and will cover all aspects of realty including a hospital (Columbia Asia), retail, commercial, residential, hotel, etc.

GARDEN CITY DELIGHTS

• The 2005 performance is a 22% jump over the 7.6 million sq.ft space absorbed in 2004
• The demand in 2006 is expected to match if not outstrip last year's numbers, subject to availability of the space
• The central business district (CBD) remains the most attractive for new companies
• Housing in all price bands is also in constant short supply