Office Space Absorption Declines in Bangalore Due to Weaker IT Demand
Office space absorption in Bangalore experienced a significant decline attributed to reduced demand from the Information Technology (IT) and IT-enabled Services (ITeS) sectors. Real estate experts concur that the diminished uptake of office spaces within Bangalore is a direct consequence of IT and ITeS companies demonstrating less demand for workspace. Reports indicate that the absorption of office space plummeted by 24% in the preceding year.
2012 Absorption Rates Significantly Lower Than 2011
Cushman & Wakefield, a globally recognized real estate consultancy, reported that approximately 7.3 million sq. ft. of office space was absorbed during 2012. This absorption rate represents notably lower than the 9.59 million sq. ft. observed in the absorption rate during 2011. While the IT and ITeS sectors accounted for nearly three-quarters of the total office space supply in 2011, their absorption in 2012 only slightly exceeded two-quarters of the total supply.
Decline Steepens in the Latter Half of 2012
Another prominent real estate consultant, Knight Frank, disclosed that the decline in office space absorption became particularly pronounced during the second half of 2012, with only 56% of available space being absorbed. This represents a considerable decrease from the 74% absorption rate recorded during the second half of 2011.
IT Sector Demand Fluctuations and Global Economic Factors
Mr. Satish B N, Co-head of DTZ India, a real estate consultancy firm, noted that IT sector demand has been experiencing fluctuations on an overall level in Bangalore. Furthermore, real estate analysts have directly linked the slowdown in global demand for IT services to the reduced demand observed from Bangalore's IT and ITeS sectors. Avinash Rao, Knight Frank’s regional director for South India, indicated that the European crisis and the sluggish US economy have also contributed to a sense of caution among IT and ITeS companies operating in the region.
“These have made the IT and ITeS sectors cautious.”
Other Sectors Partially Offset Decline and Rental Rates Increase
Meanwhile, increased absorption by other sectors helped mitigate a more substantial decline in the overall office space absorption in Bangalore. This diversified demand prevented a deeper fall within the commercial office space market. The segments, including manufacturing and banking & finance, accounted for approximately 11% of the total office space supply in 2012. It is noteworthy that as of the report date, a steady decrease has been registered in the city’s vacancy rate, while rental rates in Bangalore have risen by 17%.