Bengaluru’s Office Rental Growth to be the Highest in 3 Years!

According to a recent report from Knight Frank, global property consultant firm, the office space rentals in Bengaluru is expected to grow by 15.8% in the next three years, which is one of the highest across the world. This is just because of a strong demand for office spaces from start-ups and ecommerce companies.

The report also mentions that, Bengaluru ranks fifth in the list of top 20 cities across the world on forecast for office rental growth, whereas Mumbai stands second with the growth rate of about 21.3%. The list also includes top cities like San Francisco, Madrid and Melbourne. The year 2015 has already been a record year for Bengaluru, which has registered a transaction of about 13 million square feet.

Even though the vacancy rate was at 17% at an aggregate level, it was really a challenge for the occupiers to get quality office space across the prime business districts, says Shishir Baijal, the managing director and chairman at Knight Frank India. According to him, the main reason for substantial surge in office rentals is the robust demand for office spaces from start-ups, ecommerce companies, BFSI and other sectors.

Demand for Grade-A Office Space

• The demand for Grade A office space in Bengaluru is about 10 million to 11 million square feet, but the supply is 10-20% less than the demand. Popular ecommerce companies like Amazon and Flipkart, technology companies like Accenture and Cognizant, and Energy Company like Shell have already taken the office space or they are in immediate need of 25,000 – 50,000 sq. ft. to house their employees and start their operations.

• Amazon has taken 1.3 million sq. ft. space in Bagmane Tech Park; Flipkart leased about 3 million sq. ft. in Embassy and the US bank Wells Fargo has also leased 1 million sq. ft. in the Outer Ring Road.

• The ecommerce companies have contributed a lot to Bengaluru in the year 2015; they contributed about 2.19 million square feet of office space in the first of 2015, which was just 1.44 million sq. ft. in the previous year.

On comparing the global financial centres like New York and London that offer the rental yields of 4%, Bengaluru offers the yield of 10%, whereas Mumbai and Delhi offer the yield of 10.5% and 9% respectively. However the rentals in Delhi and Mumbai are lower than 2007 levels by 19% and 17%, but Bengaluru still holds the forte with the growth of 8%.

Samantak Das, the chief economist at Knight Frank India said that, currently the cities are facing a severe shortage of quality spaces because of the robust demand which is building an upward pressure on office rentals, and is also expected to scale up in the range of 6-7% in the next six months.

Sahaana Jai, the author of the above article is working in a real estate concern offering office space in Bangalore. She is a blogger as well as a web enthusiast.