Bangalore leads the office space market in the country accounting for almost 36 per cent of a total of 6 million square feet of office space absorption in India during the first three months of 2011.

According to the latest report of commercial real estate consultancy, CB Richard Ellis Group Inc, the southern city absorbed around 2 million sft of office space during January-March, 2011, while the National Capital Region (NCR) absorbed 1.6 million square feet (around 27 per cent of the total). The report, India Office Market View Q1, 2011, states that office space absorption in the country increased 20 per cent year-on-year in the said period. While major business districts in south India witnessed a slowdown in absorption of office space, a large number of companies opted to open office in new areas and suburbs near the major cities.

"With no fresh supply infused or likely to be infused in the extended business district of Indira Nagar, Koramangala, Old Madras Road, CV Raman Nagar in the near term, most companies have plans to relocate to peripheral markets of Outer Ring Road (ORR) and Whitefield," the report says. The outlook for the market remains upbeat for the coming few quarters, it adds.

The report expects the suburbs to see an increase in transaction volume over the next few quarters with proposed expansion by various corporate firms. It says these firms prefer the more cost effective suburban Grade A space, classified as the highly priced and most sought after office spaces.

Due to limited supply of ready Grade A space in the central business district (CBD) and increase in demand for office space, rental values are likely to move up in near term in this micro-market.

The commercial office real estate market in Chennai has witnessed absorption of approximately 500,000 sq ft in the first three months of 2011. The CBD consisting of Anna Salai, T Nagar, RK Salai, Alwarpet and Nungambakkam did not witness new supply addition in the first quarter. However, a few projects are lined up for completion in the second quarter of 2011, according to the report.

In Hyderabad, there was a significant increase in demand for office space, driven by the expansion requirements of some of the larger IT and IT-enabled Services (ITeS) players. The increase in demand along with limited ready supply, has increased the rental values across micro-markets. The city is expected to witness an addition of almost 4.5 million sq ft of Grade A supply by the end of 2011. "It would see an increase in demand in the next few quarters owing to the plans of various IT and non-IT firms to expand presence across Hyderabad. The situation would lead to compression of vacancy levels and rental appreciation," the report says.

Source: 15. April. 2011, business-standard.com