Bengaluru's Office Leasing Skyrockets by 83%, Hitting 5.5 million Sq Ft in Q2

Bengaluru's Office Leasing Market Soars in Q2: A Strong Recovery

 Bengaluru's office leasing market witnessed a significant surge in Q2 2024, reflecting the city’s resilience and its appeal as a prime destination for corporate expansion. According to recent data from Cushman and Wakefield, the gross leasing volume (GLV) in Bengaluru reached an impressive 5.5 million square feet (MSF) during the quarter, marking a substantial 83% year-on-year (YoY) increase. Although this figure represents a strong recovery, it is slightly below the exceptional activity seen in the previous quarter.

Net Absorption Sees Remarkable Growth

The remarkable growth in leasing activity had a profound impact on net absorption, which soared 4.5 times compared to the same period last year. The net absorption rate hit 2.5 MSF, showcasing a healthy demand for new office space in the city. This increase was largely driven by strong fresh leasing, which accounted for approximately 60% of the total GLV in Q2.

The Cushman and Wakefield report highlighted that several large deals were closed by global multinationals during the quarter, signaling strong confidence among occupiers. These transactions underscore the enduring demand for high-quality office spaces as companies move forward with their expansion plans.

Sectoral and Geographical Insights

A deeper analysis of the leasing activity reveals interesting sectoral trends. The banking, financial services, and insurance (BFSI) sector led the pack, contributing to 38% of the quarterly leasing volume. This was followed by the IT-BPM sector, which accounted for 25% of the GLV. Flex space operators also made a notable impact, securing 14% of the quarterly leasing volume, while the traditionally significant engineering and manufacturing sectors contributed only 8%. Geographically, the Outer Ring Road (ORR) continued to dominate, accounting for 65% of the leasing activity in Q2. Peripheral East followed with a 14% share. The strong performance in these areas underscores the continued preference for prime office corridors in Bengaluru.

Pre-Commitments and Large Deals Drive Market Momentum

One of the key drivers of Bengaluru's office leasing market in Q2 was the significant increase in pre-commitments, which rose to 35% of the quarterly GLV, up from 28% in the previous quarter. This indicates that occupiers are increasingly locking in space ahead of time, reflecting their confidence in the market's future. Large deals, particularly those exceeding 100,000 square feet, remained a dominant force, making up 56% of the GLV for the quarter. This trend is in line with the growing presence of Global Capability Centers (GCCs) in Bengaluru, particularly in sectors like IT, BFSI, and manufacturing. These GCCs accounted for nearly 39% of the quarterly GLV, further highlighting Bengaluru’s status as a preferred destination for large-scale corporate operations.

Half-Yearly Performance Shows Strong Recovery

The first half of 2024 has been particularly impressive for Bengaluru’s office market. The GLV for H1 stood at 12.3 MSF, more than double the volume recorded during the same period last year. Net absorption for the first half of the year was 6.1 MSF, reflecting a nearly threefold increase compared to H1 2023. This strong performance underscores the rapid recovery of the market, which gained momentum in the latter half of last year and has continued to strengthen in the current year.

Supply and Vacancy Trends: A Dynamic Landscape

On the supply side, Bengaluru saw 2.2 MSF of new office space added in Q2, marking a 24% decline from the previous quarter and a 17% drop compared to the same period last year. The decline in new supplies was primarily due to delays in obtaining occupancy certificates for certain projects. However, on a half-year basis, new supply reached 5.1 MSF, representing a 6.1% increase over the first half of the previous year. The new supply was spread across various micro-markets, including the Central Business District (CBD), Peripheral East, Peripheral North, and Peripheral South. Interestingly, this was the first quarter in several periods where the ORR, Bengaluru’s prime office corridor, did not record any new supply. However, the pipeline for future supply remains robust, with developers expected to expedite completions in response to the strong demand. The city-wide vacancy rate also saw a positive trend, with the headline vacancy rate falling by 30 basis points (bps) every quarter. The ORR and Peripheral North areas experienced particularly sharp declines in vacancy rates, reflecting the strong absorption in these regions.

Rental Trends: Stability Amid Growth

Despite the dynamic changes in leasing activity and supply, headline rental rates remained stable throughout the quarter. The balance between supply and demand is expected to keep rental rates range-bound in the near term. However, in prime micro-markets and existing Grade A properties with tight vacancies, higher rental rates are likely to persist due to the robust demand dynamics.

A Market Poised for Continued Growth

Bengaluru's office leasing market has demonstrated remarkable resilience and growth in Q2 2024, driven by strong demand across various sectors and regions. The increase in net absorption, the dominance of large deals, and the stability in rental rates all point to a market that is well-positioned for continued growth. As developers work to meet the high demand, Bengaluru is likely to maintain its status as a key hub for corporate expansion in the coming quarters.