India’s Scale Concerns: Real Estate

Economic Times, India confirms that Bangalore is bursting at the seams:

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The realty juggernaut brushed aside slowdown concerns in Bangalore going by the just released office space absorption figures for 2006. With Bangalore continuing to be a major IT/ITES hub, the absorption figure in 2006 in the country’s IT capital has reached a new high of 14.2 million sq ft — the highest among metros in India, and probably the second highest in the world after Tokyo.

This makes a whopping 53% growth over the last year.The office space absorption figures (2005) for Bangalore stood at 9.28 million sq ft, placing it in third position after Tokyo (12.33 million sq ft) and London (9.96 million sq ft) in the list of the top four cities globally in office space absorption. With the increase in absorption (an increase of 4.92 million sq ft) Bangalore is likely to figure in the top two cities globally in office space absorption this year, reveals a survey carried out by international real estate consultancy firm DTZ Debenham Tie Leung.

Rentals in Bangalore’s CBD (Central Business District) have reached a peak of Rs 65 ($1.5) per sq ft per month, with a further increase expected owing to the lack of any new supply. 70% of total absorption of office space in the city was by knowledge based companies. In the CBD, the vacancy level is less than 0.5 % while the rest of the city has a vacancy rate of 7%-8%, which is expected to remain stable due to the huge pipeline supply in near future.

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How much of the Indian IT sector’s growth is going to happen in Bangalore going forward? Between unsustainable attrition rates, escalating real estate costs, and general infrastructure concerns, the city seems to be losing shine.