THE LONG TERM BET! North's ascendance within Bengaluru's office market
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COLLIERS RADAR OFFICE | RESEARCH | BENGALURU | 5 MARCH 2019
Megha Maan
Senior Associate Director | Research |
India
+91 96 6718 8334
megha.maan@colliers.com
Teni Alice Abraham
Analyst | Research | Bengaluru
+91 73 3865 9579
teni.abraham@colliers.com
THE LONG TERM BET!
North’s ascendance within Bengaluru’s office market
COLLIERS RADAR OFFICE | RESEARCH | BENGALURU | 5 MARCH 2019
Evolution of North Bengaluru Kempegowda International Airport (KIA)
Summary & Recommendations commenced operations in 2008, spurring
developers’ interest in North Bengaluru.
Bengaluru topped the list as the preferred This micromarket, stretching over 25 km
location in Asia for technology groups as (15.5 miles) from Hebbal Junction to the
detailed in Colliers’ report Top Locations in airport, has since touted itself as the
Asia – Technology) (18 September, 2018). emerging commercial hub of Bengaluru,
with a planned aerotropolis1 similar to
Factors supporting Bengaluru’s top spot Amsterdam’s Schiphol airport and
include its high long-run economic growth, Frankfurt am Main airport.
availability of office space, and strong pool North Bengaluru started gaining
of talent. attention from occupiers in 2014 with
However, due to challenges including major transactions from the technology
overburdened infrastructure and limited sector. Alongside commercial
vacancy in preferred locations such as the developments, social infrastructure has
been improving and residential
Outer Ring Road (ORR), Central Business
developments have started. Currently,
District (CBD) and Secondary Business there is 4.0 million sq feet (371,750 sq
District (SBD), we expect office demand to meters) of operational Grade A office
shift to Whitefield and North Bengaluru stock and an additional 5.7 million sq
(defined as the micromarkets of Hebbal feet (520,445 sq meters) of new supply
and Yelahanka), where quality supply is scheduled through 2021.
available at very competitive rents. North Bengaluru has yet to witness the
> We recommend occupiers to consider strong demand seen in the preferred
North Bengaluru for expansion and locations of ORR, CBD and SBD. However,
consolidation as infrastructure as rents increase in these micromarkets,
amidst low vacancy, we expect occupiers
improves and supply becomes
will start to see North Bengaluru as a
available.
desirable location for their offices.
> We also recommend developers to
provide flexible options to occupiers
Megha Maan
looking for 50,000-100,000 sq feet Senior Associate Director
(4,645-9,295 sq meters) of space, thus Research | India
increasing the attractiveness of large,
affordable floor plates.
Teni Alice Abraham
Analyst
Note: all figures as of Q4 2018
1An airport based township or urban development is termed as Aerotropolis
Research | Bengaluru
2 Source: Colliers International
COLLIERS RADAR OFFICE | RESEARCH | BENGALURU | 5 MARCH 2019
TABLE OF CONTENTS
Page
Summary & Recommendations 2
Occupier Strategy 4
Developer Strategy 4
North Bengaluru in context 5
Delineating the North 6
Increasing supply should favour the North 7
3
COLLIERS RADAR OFFICE | RESEARCH | BENGALURU | 5 MARCH 2019
OCCUPIER STRATEGY DEVELOPER STRATEGY
Over the past three years, North Bengaluru has captured the attention of Based on our conversations with developers in North Bengaluru, they are
various sectors. For example, in 2018 the technology sector accounted for currently apprehensive about building speculatively in this micromarket.
54.0% of total leasing in the North. Banking, financial services and insurance They are looking for commitments from occupiers before the onset of new
(BFSI) companies represented 11.0% of leasing volume, engineering projects. We expect Grade A buildings in the area around Hebbal Junction
companies leased 8.0% of space and flexible workspace operators accounted to continue to be in demand due to their proximity to the CBD and ORR,
for 7.5% of gross leasing. while the area around Yelahanka and further north will likely need better
social infrastructure and residential density to attract sustained occupier
We suggest cost- Based on our market intelligence, occupiers with large requirements of
demand.
above 1.0 million sq feet (92,940 sq meters) are considering North
conscious
Bengaluru for their future expansion plans, and Grade A office developments Based on our discussions with various occupiers, we recommend developers:
occupiers with with large floor plates and opportunities for contiguous expansion are likely
expansion plans to drive their office space planning in the future.
> Provide flexible options for mid-sized occupiers looking for 50,000 sq feet
and companies (4,645 sq meters) to 100,000 sq feet (9,290 sq meters) of office space in
looking for SEZ To capitalise on the current market trends, we recommend the following close proximity to the airport.
strategies for occupiers looking to find the best fit for their business needs.
benefits to > As we expect demand to increase over the next five years, we
consider North > The well-established office market around the Hebbal Junction is suitable recommend developers pay attention to changing technologies with
Bengaluru. for existing occupiers looking for expansion in proximity to the ORR respect to construction and building management systems. Developers
micromarket, regardless of the cost. Well established IT companies should aim to be future-proof and invest in systems that will support
targeting talent acquisition, employee retention and reduction in their premium rentals, such as deploying automated parking slots and charging
attrition rates should focus on Hebbal for future expansion. points for electric vehicles.
> The Yelahanka micromarket offers relocation and consolidation We urge both developers and occupiers to actively participate in public-
opportunities for IT occupiers to hedge against rental increases, as it private partnership (PPP) models to develop social amenities and
offers 40.0% lower rentals than the Bengaluru average. We suggest cost- infrastructure such as the Namma Metro, similar to contributions made by
conscious occupiers with expansion plans, and companies looking for IT- Embassy Group, Infosys and Intel2 for the ORR metro line. Aids could come in
Special Economic Zone (SEZ) benefits to consider this micromarket. the form of financing, construction or even management of associated
facilities.
> Small and mid-sized occupiers looking for office space in proximity to the
airport should consider flexible workspaces. In 2018, prominent flexible
workspace operators such as Regus, SimplyWork and IndiQube
commenced operations in this micromarket, cumulatively leasing
225,000 sq feet (20,910 sq meters).
2 https://economictimes.indiatimes.com/industry/transportation/railways/namma-metro-you-can-own-
it-too/articleshow/66776885.cms
4COLLIERS RADAR OFFICE | RESEARCH | BENGALURU | 5 MARCH 2019
Bengaluru demand and supply dynamics by micromarket (million sq feet)
NORTH BENGALURU
IN CONTEXT
Over the last four years (2014-2018), Bengaluru
has witnessed average annual gross office leasing
of 13.9 million sq feet (1.3 million sq meters),
with the ORR micromarket accounting for 45.0%
of total leasing volume. The SBD and CBD
Colliers expects micromarkets follow with 13.0% and 9.0%,
Whitefield and respectively. Colliers forecasts demand for Grade
Hebbal to witness A office space to increase by 1.0% compounded
high growth in annually over 2019-2021 to 14.5 million sq feet
leasing activity (1.3 million sq meters). However, limited vacancy
over the next three in the preferred micromarkets in the next three
to five years to five years may necessitate occupiers
considering North Bengaluru.
Even though North Bengaluru constituted only
7.0% of Bengaluru’s gross office leasing volume
in 2018 and holds about 4.0 million sq feet
(371,750 sq meters) of Grade A operational
office stock, we expect it to be increasingly
appealing to occupiers with the addition of 5.7
million sq feet of space (520,450 sq meters) by
2021, together with ongoing improvements in
infrastructure.
Complete Namma Metro Cumulative demand forecast 2019-2021 Demand supply equilibrium
Under-Construction Namma Metro Cumulative upcoming supply over 2019-2021 Demand greater than supply
Notes: Supply greater than demand
All values are in millions of sq feet
Data as of Q4 2018
CBD include MG Road and, Richmond Road, Infantry Road, Cunningham Road, Sankey Road, Palace Road, Vittal Mallaya Road and others
SBD includes Indiranagar, Koramangala, CV Raman Nagar and others
5 Source: Colliers InternationalCOLLIERS RADAR OFFICE | RESEARCH | BENGALURU | 5 MARCH 2019
DELINEATING THE NORTH North Bengaluru, indicative rents
North Bengaluru can be characterised by a greater number of standalone
Towards
buildings than in the IT parks in more mature micromarkets such as ORR and KIA
Whitefield. Grade A stock in North Bengaluru is about 4.0 million sq feet
(371,750 sq meters), and the robust supply pipeline is scheduled to inflate Yelahanka
North’s stock by over 140% by 2021.
North Bengaluru is typically delineated into two sections. The first section is
Thanisandra
from Hebbal Junction to Thanisandra Road while the second section Road
While ORR is likely commences at Yelahanka and extends towards KIA, with rents varying by up
to continue its to 38.0%.
Bellary Road
dominance, over Hebbal Junction and Thanisandra Road tend to see more active office leasing
the next five years than areas further north. The distance of only about 10 km (6.2 miles) to the Manyata Tech Park
we expect North CBD and ORR contributes to the leasing momentum in this micromarket.
Bengaluru to rise Around 57.0% of Grade A supply in the North over 2019-2021 is Hebbal Jn.
to the third choice concentrated in this stretch. In our opinion, the most immediate demand
for occupiers, after will spill over to this micromarket, especially for technology occupiers. Metro Red line
Colliers projects leasing activity in this micromarket to increase over the next
Whitefield. Road
three years. Rents INR78 (USD1.1) /sq ft/ month
Yelahanka is a relatively dormant market, where the rents are in the range of Rents INR48 (USD0.7) /sq ft/ month
INR45 per square foot per month to INR50 per square foot per month
Rental comparison (INR per square foot per month)
(USD0.6–0.7 per square foot per month), 40.0% lower than average citywide
rents. This may be compared to the citywide average of INR79.0 per square
foot per month (USD1.1 per square foot per month). Factors such as
distance from established residential catchment areas, around 16-20 Km (9-
12 miles) and the lack of residential and social infrastructure in the
micromarket make occupiers sceptical when considering leasing space in this 11% lower rents in Hebbal
micromarket. However, around 2.5 million sq feet (223,050 sq meters) of IT-
SEZ supply is planned through 2020, with most of this scheduled to come
online by mid-2019.
Comparable rentals between
Whitefield & Yelahanka
1USD=INR69.55 as on 31 December, 2018
Source: Colliers International
6COLLIERS RADAR OFFICE | RESEARCH | BENGALURU | 5 MARCH 2019
Key growth drivers, North Bengaluru micromarket Bengaluru supply outlook (2019-2021)
Increasing Others
Large and affordable CBD
5%
availability of residential Hebbal Jn. SBD
4%
premium quality catchment areas 7%
space 3.2 million sq ft
Yelahanka
North
15%
37.8 ORR
43%
mn sq ft
2.5 million sq ft
Development
Affordable
Potential: Upcoming
rents
Namma Metro, Whitefield
26%
available land
IT/ITeS IT- SEZ
Source: Colliers International Source: Colliers International
Moreover, with an upcoming supply of 5.7 million sq feet (520,445 sq
INCREASING SUPPLY FAVOURS THE meters) and 25.0% lower rents than in the ORR, we expect occupiers to
consider North Bengaluru for their future expansions.
NORTH We expect North Bengaluru to undergo transformation and cater to both
commercial and residential demand over the next five years. Currently,
Colliers forecasts increased leasing transactions in the ORR
sovereign wealth funds have formed joint ventures with developers for
micromarket over 2019-2021; however, demand momentum may premium Grade A offices under-construction in North Bengaluru. In addition,
not be sustained by supply. With ORR’s Grade A vacancy at 3.6% and our this micromarket is witnessing affordable residential developments catering
forecast of average annual supply of 5.4 million sq feet (501,858 sq meters) to the Gen X and Y population. For example real estate developer Embassy
over 2019-2021, ORR may mostly fall short in accommodating our estimate Group3 has tied up with the e-commerce giant Amazon to provide smart
of 6.0 million sq feet (557,620 sq meters) of average annual demand. As homes4 at affordable prices. Further, infrastructure projects such as the
Whitefield, Hebbal Junction and Yelahanka are the only micromarkets with Peripheral Ring Road, Red line of the Namma Metro and the ambitious
significant supply compared to their demand, we expect unmet demand to elevated corridors are planned to boost connectivity to this micromarket.
spill over to these areas.
Over the next five years, we expect this micromarket to house better
We anticipate Whitefield and North Bengaluru to gain traction. Over residential and social infrastructure. Colliers suggests occupiers should
the next three years, we expect Whitefield to witness a robust supply consider North Bengaluru for their future expansion plans.
pipeline of around 10 million sq feet (929,370 sq meters), the equivalent of 3https://tech.economictimes.indiatimes.com/news/technology/amazon-partners-embassy-group-for-
26.0% of citywide Grade A supply. The much anticipated completion of the alexa-enabled-smart-homes/64306540. 4A home equipped with lighting, heating, and electronic devices
metro rail connecting Whitefield by 2021 will further boost the demand in that can be controlled remotely by smartphone or computer.
7 this micromarket.Primary Authors: For further information, please contact:
Megha Maan Ritesh Sachdev
Senior Associate Director | Research | India Senior Executive Director | Occupier Services | India
+91 96 6718 8334 +91 99 4569 7377
megha.maan@colliers.com ritesh.sachdev@colliers.com
Teni Alice Abraham Arpit Mehrotra
Analyst | Research | Bengaluru Senior Director | Head - Office Services | Bengaluru & Hyderabad
+91 73 3865 9579 +91 99 6603 0144
teni.abraham@colliers.com arpit.mehrotra@colliers.com
Megha Maan
Senior Associate Director | Research | India
+91 96 6718 8334
megha.maan@colliers.com
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