Bengaluru: Bengaluru’s office market -- traditionally a flagbearer of commercial leasing in India -- took a hit in the back half of 2023 as third-party IT services providers trimmed their leasing to 15%, from 27% in 2022 - a report by property consultancy Knight Frank India revealed on Wednesday.
At 5.5 million square feet (mn sq ft) in total office leasing transactions during the July-December period, the garden city recorded a 19% year-on-year decline, the only one among the top eight Indian cities to witness de-growth.
“Because of a compulsion to conserve resources amid recessionary pressures, Europe and America-based clients of these third-party IT services companies either did not roll out contracts or entered into moderated contracts in 2023. As a result, these IT companies hired in lower numbers and resorted to working from home to save on costs,” Vivek Rathi, who heads research at Knight Frank India, explained.
Others agreed. “The third-party IT services companies did not expand much in 2023, this decline is primarily because of that,” Rohan Sharma, senior director, research, at property consultancy JLL said.
This crunch in leasing requirement was however cushioned by flexible workspaces, India facing businesses of multinational conglomerates and global capability centres, the report noted. As a result, Bengaluru retained its leadership position to top overall office leasing among the top eight markets in 2023 at 12.5 million square feet.
The city also sold 54,046 residential units in the whole of 2023 -- the highest in the past nine years, accompanied by a 7% annual surge in prices.
With a fresh supply of 13.4 mn sq ft of office space during last year, unsold inventory currently stands at 215 million square feet.
According to the report, the average transacted rentals in the city grew by 6.6% year-on-year to Rs 86.4 per sq ft a month in 2023. While the micro markets of peripheral business district east and Outer Ring Road recorded significant rental growth, the central business district commanded the highest rental range of Rs 110-195 a square ft a month.
Experts who spoke to DH cited at least a six-month period before IT services companies may report a recovery in their share of overall office space leasing.
“It is dependent on a change in the economic scenario globally. I see an improvement happening between 12-18 months,” Sharma said.
The outlook for Bengaluru’s office market remains positive. “The acceleration of return to office by firms and the growth in India facing businesses along with stable business inflow from the western developed markets into India, should support the growth in the office market demand in the near term,” Shantanu Mazumder, Knight Frank Executive Director for Bengaluru, said.