May 2010

With corporates, especially in the IT sector, looking to expand again, commercial space-owners in Bangalore, badly beaten by the real estate market crash, are competing with each other to attract good clients. Space-owners are now “bending over backwards” to get a good client, and consequently, “a lot of hard options are now available for tenants,” says Prakrut Mehta, national director – office and industrial agencies, Knight Frank India, a real estate consultancy firm. These hard options have, in fact, become a way of life, he adds. Shrinivas Rao, CEO – Asia Pacific, Vestian Workplace Services, says that most landlords are coming up with innovative propositions to attract tenants. According to him, from a security deposit structure of 10 months, landlords have reduced the deposit structure to even up to three (0-3) months. For already fitted-out spaces, they offer up to four months’ rent-free period subject to longer lock-in tenure. Tenants are also being offered “tenant improvement allowance of up to two months’ rent in addition to a rent-free period of three months for three to five year lock-in lease tenures”, he adds. Car park slots also come at no extra cost on the basis of one per 500 sq ft leased as against one per 750 sq ft (normally charged at Rs 2,000 a slot). The Outer Ring Road micro-market, which contains a strong pipeline of SEZ space, is emerging a focal area for companies evaluating long-term expansions and consolidation opportunities, says a recent CB Richard Ellis’ ‘India Office Market View’ report. Mehta adds that there is a lot of demand for space from both MNCs — both tier-I and tier-II companies, and Indian corporates. Large Indian companies feel that it makes economic sense to buy space when the prices are down, he explains. However, even as the demand improves, it’s not happy days yet again for the Bangalore commercial real estate market. The reason: oversupply in micro-markets. Industry analysts peg the available vacant space in Bangalore’s micro-markets at between 5 million and 6 million sq ft. According to Mehta of Knight Frank India, from the peripheral areas of Whitefield, Electronic City and to even Bidadi, “there is vacancy all around”. This peripheral business district micro-market — including Outer Ring Road, Whitefield, Electronic City and North Bangalore — remained oversupplied in the first quarter of 2010 as developers were forced to complete projects to comply with Government undertakings and investor commitments, despite low level of end-user interest, says the CBRE report. With companies going on an overdrive in the past two years to cut down on their real estate costs, the space-owners couldn’t have had it tougher as rental values fell, on an average, by 50 per cent during the crash. “From there on, rentals have increased 10-15 per cent in the last quarter,” says Mehta. Though rental values have slightly improved in the last six months, they are still way below the peak levels of 2008, say analysts.