The IT sector and a booming economy have fuelled the demand for office spaces in Bangalore and the trend seems set to move upwards.

IT sector fuelling demand for office space

The IT and ITES industry continues to be the primary driver of office space demand across all micro markets in Bangalore. The Bangalore real estate market is expected to continue to remain among the top global markets in the next quarter of 2007 as well, according to a release by Cushman & Wakefield. While the city saw a total demand of approximately 11. 5 million sqft in 2006, it has already witnessed demand of 6.7 million sqft over the first and second quarters of 2007. This includes absorption of around 5.3 million sqft and pre-commitments of around 1.4 million sqft indicating a 16 percent increase over the cumulative demand of the first two quarters in 2006. IT and ITES companies continue to dominate all major commercial space transactions. No wonder then, the existing private information technology parks have begun to add new blocks in their campuses to cater to the rising demand from companies in this sector in the city.

The demand for office space is also fuelled by the high-end engineering and R&D sectors. If the current trend continues, the cumulative demand for 2007 in Bangalore is expected to increase by about 15 percent to 18 percent over last year. The Central Business Districts (CBD) and off-CBD regions of Bangalore have witnessed minimal activity so far this year, primarily owing to shortage of fresh supply. Demand in the suburban locations was approximately two million sqft over the first half of the year. Of this, C V Raman Nagar constituted nearly 1.2 million sqft being the most active micro-market, followed by Old Madras Road and J P Nagar.

The peripheral markets continued to cater to the majority of the demand, outperforming all other micro markets, followed by the south-eastern corridor of the Outer Ring Road. The southern peripheries - Hosur Road corridor and Electronic City have seen a marginal increase in leasing activity due to visible progress of work on the upcoming Elevated Expressway project on Hosur Road. Leasing activity is expected to further intensify here by end 2007 and early 2008. Rental values have steadily strengthened in most micro markets. In Whitefield and the southern peripheries they have remained stable over the past one year, due to continued availability of ready-to-move-in supply.

If the current trend continues, the cumulative demand for 2007 in Bangalore is expected to increase by about 15 percent to 18 percent over the last year. Increase in the leasing activity in Whitefield and the southern periphery is likely to cause a marginal increase in rental values in 2008. Rental values in these locations are expected to continue to be relatively lower than other micro markets in Bangalore.

A 2006 study by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young found that the total revenue from sales of commercial and residential property throughout India had grown 30 percent a year for the previous three years. Merrill Lynch forecasts India's property industry will grow to $90 billion by 2015, up from $12 billion in 2005. As India's economy grows, it will need more office spaces. India's infrastructure demands too should keep plenty of companies in business. The government estimates the country needs $320 billion of investments in roads, ports and bridges by 2012.