Bengaluru office vacancy to rise in H2 2023; retail rentals remain flat: Report
A report jointly released by the commercial real estate association CiRE Development Foundation and real estate developer Puravankara indicates that the commercial real estate segment in Bengaluru is poised for an increase in vacancy rates in the coming quarters. This projection is based on the anticipated addition of approximately 11-12 million square feet (msf) of commercial real estate supply during the second half of 2023.
During the first half of 2023 (H1 2023), Bengaluru witnessed the introduction of 4.5 msf of commercial real estate supply. Looking ahead, an estimated 15 msf of additional supply is projected to enter the market in the subsequent year. Notably, a significant portion of this new supply is expected to be concentrated within the prime Outer Ring Road (ORR) micro-market.
As a result of this influx of new commercial real estate supply, the report suggests that the vacancy rates in Bengaluru’s commercial segment are likely to rise. The increase in supply is expected to have an impact on the supply-demand balance, potentially leading to higher vacancy levels in the near term.
These projections underscore the evolving dynamics of the commercial real estate sector in Bengaluru. The concentration of new supply in key micro-markets such as the Outer Ring Road area reflects the ongoing expansion and development of the city’s commercial landscape. Stakeholders in the real estate and business sectors will closely monitor these trends to adapt their strategies and decisions accordingly.
In the first half of 2023 (H1 2023), Bengaluru witnessed the leasing of approximately 5.5 million square feet (msf) of office space. Although this accounted for nearly 15 percent of the total gross lease volumes in India during that period, it marked a decline from the leasing activity seen in H1 2022.
Notably, when compared to the pre-COVID levels, commercial rental rates in both north and south Bengaluru remained relatively stable during H1 2023. In contrast, east Bengaluru experienced a significant appreciation in rental rates, with an increase of over 50 percent. Central Bengaluru also saw noteworthy appreciation, with rental rates rising by about 30-35 percent on average.
The Information Technology-Business Process Management (IT-BPM) sector remained a dominant force in driving demand for office spaces, contributing to 40 percent of the leased space during H1 2023. Following closely was the banking, financial services, and insurance (BFSI) sector, which accounted for 25 percent of the leased space.
These trends highlight the ongoing influence of specific industries on the demand for commercial real estate in Bengaluru. The city’s commercial landscape continues to be shaped by the evolving preferences of businesses, reflecting the interplay between sectoral growth, economic conditions, and shifts in work patterns. As the commercial real estate sector responds to changing dynamics, stakeholders will closely analyze these patterns to make informed decisions in the evolving market environment.
In the first half of 2023 (H1 2023), the retail sector in Bengaluru experienced a resurgence in positive investment sentiments. This was evident through the leasing of approximately 0.6 million square feet (msf) of retail space and the introduction of around 0.3 msf of new supply.
Much like the trends observed in the office segment, the report highlights the stability of rental rates in most of the city’s prominent high streets when compared to pre-pandemic levels. With the exception of MG Road, rental rates in key areas such as Brigade Road, Commercial Street, Indiranagar, and Koramangala remained relatively unchanged during the first half of 2023.
This indicates that despite the challenges posed by the pandemic, the retail sector in Bengaluru has shown resilience and adaptability. The stabilization of rental rates and positive investment sentiments reflect the continued interest in retail spaces and consumer engagement, underscoring the importance of these areas as hubs for business and commerce.
The revival in the retail sector, coupled with stable rental rates, suggests a measured recovery and gradual return to normalcy for this segment. As the city’s retail landscape evolves in response to changing consumer behaviors and market conditions, stakeholders will continue to assess these dynamics to make informed decisions and seize opportunities for growth and investment.
In the initial half of 2023 (H1 2023), the retail sector in Bengaluru experienced a notable resurgence in positive investment sentiment. This was manifest through the leasing of approximately 0.6 million square feet (msf) of retail space and the introduction of around 0.3 msf of new supply.
Analogous to the trends witnessed in the office segment, the report underscores the stability of rental rates across most of the city’s prominent high streets when juxtaposed with pre-pandemic levels. Excluding MG Road, rental rates in significant areas such as Brigade Road, Commercial Street, Indiranagar, and Koramangala exhibited relatively minor changes during H1 2023.
This resilience in the face of pandemic-induced challenges indicates the retail sector’s adaptability and fortitude. The consolidation of rental rates at stable levels, along with the positive investor sentiment, attests to the sustained interest in retail spaces and the ongoing engagement of consumers. These areas continue to play a pivotal role as vibrant hubs for business and commerce.
The reinvigoration of the retail sector, in conjunction with the consistent rental rates, signifies a methodical resurgence and a gradual shift toward normalcy within this segment. As Bengaluru’s retail landscape evolves to align with shifting consumer preferences and market dynamics, stakeholders will persist in evaluating these trends to make informed choices, capitalize on growth prospects, and foster investments.
CiRE, a conglomerate comprising over 120 corporations, including representatives from prominent companies like Google and Microsoft, has already presented its report to DK Shivakumar, the Bengaluru City Development Minister, and Priyank Kharge, the IT/BT Minister.
The organization’s vision includes assuming management responsibilities for the heavily congested 30-kilometer stretch between Silk Board and Hebbal in a phased manner. Initiatives have been initiated to enhance traffic management, including the deployment of additional CCTV cameras, traffic wardens, and control rooms to monitor and alleviate congestion along this route. Era Chaturvedi, Co-founder of CiRE, emphasized these measures while speaking with Moneycontrol.
On August 15, CiRE is scheduled to introduce another innovative endeavor aimed at curbing the illegal dumping of construction and demolition (C&D) waste in Bengaluru. Collaborating with the local municipal body, Bruhat Bengaluru Mahanagara Palike (BBMP), the association plans to launch a dedicated app. This application will facilitate the tracking of vehicles transporting debris to recycling centers. CiRE is partnering with various corporations and developers to expedite the implementation of this solution.
These efforts exemplify CiRE’s proactive role in addressing key urban challenges in Bengaluru. By leveraging technology and engaging in collaborations with governmental bodies and stakeholders, CiRE is making significant strides toward improving traffic management and waste disposal practices in the city.
