A favourite with the IT and tech crowd, Bengaluru (formerly Bangalore) has become one of the brightest jewels in India’s business crown, and demand for office space has led to an all-time shortage of supply in the city.
The situation is not a surprise, given Bengaluru’s role as India’s leading tech city since opening a 330-acre industrial park for electronics in the 1970s, attracting companies like Apple, General Electric, Oracle and other international giants, besides Indian technology behemoths. Approximately 40 per cent of India's IT and software exports come from the city, and its wealth of technical expertise makes it an attractive choice for setting up an office.
Global and Indian organisations have consistently grown in this city in the last two decades. Companies found low labour and real estate costs initially, and then discovered the ability to do sophisticated work with significant value add. MNCs and Indian corporations thus began to consolidate their real estate holdings, growing headcounts, and expanding, with functions such as HR and IT driving this trend.
The city has a reputation for offering great value as well. Historically speaking, Bengaluru has witnessed consistent demand for offices over the last two decades, and good quality space has always been absorbed by tenants when it is under construction. The result has been that pre-leasing has been a norm in this city for a long time and it continues to thrive with long term demand from technology, R&D and captive centres for global organisations.
According to Savills research, the vacancy rate in the prime corridors of Bengaluru remains under 4 per cent compared with a national average of 12 per cent for Grade A properties. These low vacancy rates are only comparable to the Cyber City micro market in Gurgaon. As India sees exponential growth in IT, tech and ecommerce, Bengaluru is at the centre of the action, and there are many reasons why this will continue, if not accelerate.
Inherent value in Bengaluru
Savills Tech Cities programme ranks Bengaluru among the top 20 in the world for technology occupiers. Bengaluru office rents for tech firms are US$12 per square foot per annum compared to a global average of US$53, a very competitive figure. This has been matched by its cost of living, which beats the likes of other rising stars such as Cape Town, Santiago and Buenos Aires.
Crucially, Bengaluru’s growth potential is high, when examining demographic figures. The ratio of ‘millennials’ to baby boomers is 2.8, when compared to 1.3 across the 22 cities examined by Savills Tech Cities, while population growth comes in at 28 per cent with the city average being 10 per cent. Simply put, Bengaluru has all the growth potential and factors it needs to become one of the world’s top tech hubs, as long as the city can manage its available office space in the long-term.
From a leasing point of view, we see that demand will continue in the city for the foreseeable future, particularly as Indian universities accelerate their supply of young graduates able to contribute to sectors including engineering, customer service, HR, IT and related industries. Potential tenants would be wise to seek longer-term leases, at least until the supply base increases significantly.
With a large base of industries and companies in the city, along with a lack of comparable rivals, the city shows resilience and longevity, just the reasons why a longer-term lease with rentals locked in makes sense. We continue to see Bengaluru as India’s premier technology destination in the long term; be sure to get your foot in the door earlier, rather than later.
Read more: Savills Tech Cities