Demand for office, retail space up in Q2 of 2011

    Demand for office, retail space up in Q2 of 2011

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    The demand for office and retail space in Bangalore has witnessed a sound growth in the second quarter of the present calender year and is expected to witness an rising trend as corporates increase their headcount in the city and lease large retail spaces.

    The city has absorbed a net space of 2.05 million sq ft during this period, including 1.76 million sq ft net absorption recorded in the central business district (CBD) and secondary business district (SBD) as per a recent report of real estate consultancy firm (JLL).

    Some of the lease deals in the second quarter includes Lifesize Communication leasing 21,764 sq ft in Salarpuria Windsor on Ulsoor road, Accenture leasing 130, 347 sq ft in Pri Tech park on the Outer Ring Road, Fidelity Information Services leasing 93,480 sq ft at SJR Park, Huawei’s lease of 31,458 sq ft in Prestige Shantiniketan in Whitefield area among others. However, there was no significant supply addition in the office space segment.

    “There was completion of only one project of Prestige Exora Block, which commenced operations in the second quarter and added about 0.7 million sq ft of space to the stock of Bangalore that stood at 62 million sq ft by June-end,” the report said.

    Higher demand for office spaces has reflected in over rentals. According to JLL report, average rent for office space in the CBD increased by 4.65 per cent in the second quarter over last year. Similarly, rentals in SBD witnessed an increase of 5.33 per cent over last year.

    “The appreciation of the rental and capital values was higher in the CBD and SBD micro-markets than in other suburban micro-markets due to a growing demand and limited ready-to-occupy office space,” the report said.

    JLL report has also predicted a strong absorption during this calender year along with a rise in the rentals. “The CBD and SBD micro-markets are expected to see an absorption of 2.74 million sq ft by the end of 2011. Secondary and Whitefield micro-markets will witness majority of the leasing activity in the city,” the report said.

    Gross rent and capital values across all micro-markets increased in the second quarter and expected to rise till the year end, it added. Barring demand for office space, there is also sound momentum witnessed in the retail space during the second quarter of the calender year.

    “High street demand remained strong in Bangalore with large format retailer such as Reliance expanding their brands such as and Jewel by leasing large spaces in the city. The malls in the city also saw a good pre-leasing activity,” the report of JLL said.

    According to the study, the net absorption of rental space was around 600,000 sq ft in the second quarter. Vacancy rate also decreased to 4.9 per cent from 5.5 per cent in the first quarter in the city.

    Some key transactions during the second quarter included Reliance Digital leasing about 110,000 sq ft in Sahakaranagar, Sabaro’s leasing of 320 sq ft in in the secondary micro-market.

    Also, high street micro-markets in Indiranagar, Koramangala, Whitefield, BEL Road and Old Madras Road accounted for 148,676 sq ft of the leasing activity during this period. On the supply side, of 600,000 sq ft on Bannerghatta Road commenced operations during this period.

    The report also said that while rentals in the prime micro-markets remained stable in Bangalore, there has been a rise in the sub-urban markets.

    “Sub-urban micro-markets have witnessed an increase of about 11 per cent in rents in the second quarter after remaining stable for the last four quarters,” the report said. Similarly, capital values increased around 11 per cent in the suburban areas, it added. JLL report also predicts that demand would see a sound momentum this calender year. “Absorption is expected to be about 2.31 million sq ft of the 3.3 million space that will be available during this period,” it said. However, the vacancy rate is expected to rise to 16.4 per cent by the end of 2011 from 5.8 per cent an year earlier.

    “Rental values in the prime city micro-market will reach a range of Rs 184- Rs 250 per sq ft per month due to the lack of supply amid growing demand by the end of this year. Similarly, it is expected to increase 8-10 per cent in the sub-urban areas,” the report added.

    Source – Business Standard