Bengaluru, an emerging global real estate city

Recently, Bengaluru ranked sixth among rising tech-savvy strongholds and for providing best-in-class realty. A strong IT foothold along with stability and a significant realty spread has led to the rise in consumption and demand in the city. In times of political and economic uncertainty, it matters more than ever that we understand the bigger picture of the risks and opportunities involved in the real estate industry.  

The changing face of global real estate

Property prices have touched unparalleled levels in top global cities. While buyers were more inclined towards local property cycles a decade ago, they are now looking at global comparisons. People across the globe are learning how to respond to increasingly large capital outflows. Moreover, as the middle-class population in emerging economies is seeing an upward trend leading to an ever-increasing demand for housing and offices, the future looks positive.    

Rising tech strongholds

Access to talent is everything in the digital age. Enterprises need to locate where young creatives want to live and work. Savills has identified seven cities on the ascendant, thanks to their success in the tech sector. While there are six cities from across the globe, namely, Boston, Amsterdam, Copenhagen, Berlin, Cape Town, Tokyo, there is one from India as well.

Bengaluru has enjoyed a status as India's leading tech city since the 1970s when a 330-acre industrial park was created to house the city's electronic factories. Today, around two-fifths of India's IT and software exports come from Bengaluru, supported by low labour costs and a wealth of technical talent.

One of the most active office markets in India

Bengaluru has been a leader from an annual demand perspective year on year. And in 2017, it has recorded the highest leasing activity. The final numbers are not yet out, but as per our research, Bengaluru should have an annual absorption of about 12 million square feet for 2017.

The demand this year has been led by technology firms, software development, mobi-tech and other allied industries. The Outer Ring Road corridor in Bengaluru continues to remain the location of choice for most office-occupiers despite some traffic problems, especially during peak hours.

But this is where most quality space is located, existing as well as upcoming, and hence most occupiers are signing up for spaces here. North Bengaluru, which is Hebbal and further up north, is the area that is now upcoming and has a supply that will become available in 2018 and beyond. Vacancy ratios in Bengaluru continue to be under 10% in most prime micro-markets.

A young workforce and lots of tech operations  are a recipe for workspace demand in popular metro areas like Bengaluru and Gurugram in India. Office supply is limited in prime micro-markets and vacancy rates are under 4% (the norm for India is around 12%). Growth in mobile, artificial intelligence and similar technologies across the world has resulted in India bucking national trends and may surprise occupiers, developers  and investors.

A positive momentum  

We can comfortably state that given what we have witnessed in 2017, we expect the year 2018 to be a very stable year from an office market standpoint. Upcoming supply in most cities is backed by a good percentage of pre-leasing activity, and that makes it a safe bet from a developer's standpoint. If we look at Bengaluru, it has been witnessing a high demand and low ready-supply; and hence that trend should continue in 2018 as well.

Given the overall steady state of demand across cities, we also anticipate that prices will remain either stable or will strengthen marginally. Some prime micro-markets such as Outer Ring Road stretch in Bengaluru may see some further strengthening of prices owing to consistent demand and dwindling supply.

Some interesting trends and activities to watch out for in 2018 shall be co-working spaces, probable REIT listing by some large players, more FDI investment in large-scale tech parks, some PE exits, leasing activity by tech firms in low-supply markets and adoption of new practices, and the new normal post-RERA, demonetisation and GST. Real estate has always been exciting and interesting; 2018 is
going to be no exception.

(The author is country manager, Tenant Representation, Savills India.)