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Bengaluru : Awaiting positive turn in sentiment - Q1 2014

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The domestic economic environment remained challenging in Q1, with the latest GDP data indicating modest growth rate of 4.7% in Q4. Inflationary pressure, though stabilised, still remained high as do interest rates. However, both fiscal deficit and current account deficits remained within the target range. The Reserve Bank of India (RBI) granted preliminary banking licences to two entities after a year-long application process and indicated that issuance of new banking licences will now be a continuous process.


The office real estate market in Bengaluru remained very active in Q1 with overall space take-up at 2.3 million sq ft – a significant year-on-year (y-o-y) growth of 123%. The better than expected take-up was due to a number of large deals of over 100,000 sq ft across the city’s IT hubs of Outer Ring Road (ORR) and Whitefield. This also reflects the robust employment growth projections of these firms.

New supply remained modest in the city with 0.6 million sq ft (Figure 1) becoming operational across two projects. Vacancy levels in the city dropped marginally to 14.8%, in the wake of limited new supply and robust take-up. Average office rents remained stable and the large supply pipeline is expected to limit any significant growth in rents in the medium term, despite continued occupier interest.


The retail real estate market in Bengaluru saw only modest demand as retailers largely remained cautious due to market uncertainties. In Q1, no new malls opened for business. However, some space in malls became available due to store closures. Despite this, the net vacancy rate in the city improved marginally to 6.6%.

Average achievable rents in malls remained unchanged in Q1 due to the limited number of transactions recorded. With limited new supply expected in the year, rents may start to improve if the broader economic outlook turns positive in the second half of the year.

Source : DTZ (Groupe UGL)