Residential market remains steady despite market volatility: Knight Frank India
- Office transaction volumes in Bengaluru constituted 27% of the area transacted across top 8 cities; demand for flex spaces is at a new record high.
- Bengaluru recorded 6.4 mn sq ft of new office supply during H1 2023
- Residential sales in Bengaluru remains range bound at 26,247 units in H1 2023
- New launches at 23,542 units recording a 11% YoY growth
Bengaluru, July 4, 2023: Knight Frank India today launched the 19th edition of its flagship half-yearly report – India Real Estate: H1 2023 – which presents a comprehensive analysis of the residential and office market performance across eight major cities for the January – June 2023 (H1 2023) period. The report highlights that Bengaluru’s office space leasing transactions in H1 2023 was 7 mn sq ft, up nearly 3% sequentially (H2 2022). Bengaluru’s residential market as well continued to remain steady registering sales volume of 26,247 units during H1 2023.
Bengaluru’s office sector remained buoyant during H1 2023, despite facing multiple headwinds such as – volatility in the IT/ITeS sector, continuation in work-from home policies and the funding crunch for startups. As per the report, GCCs and co-working occupiers drove the demand for office space during H1 2023, thus, balancing the slowdown arising from IT/ITeS sector. , The report cited that, the demand for flex spaces is growing as companies, especially in the volatile IT/ITeS and start-up ecosystem, are opting to operate from co-working and managed offices as a revenue saving mechanism, as they provide more flexibility and reduce operating expenses such as those incurred on office layouts and fit-outs. New completions for office space were recorded at 6.4mn sq ft, higher by 10.3% YoY from 5.8 mnsq ft in H1 2022.
Knight Frank India noted that sectoraly, Bengaluru’s commercial market leasing volume was largely dominated by flex working spaces (41%), Global Capacity Centres at (29%) and India facing and third-party IT services accounted for 15% each. Flex occupier leasing volume accounted to 2.9 million square feet during H1 2023, the highest level in the last ten half-yearly periods and accounting for 41% of the city’s total transaction volume. Although Bengaluru’s office market is predominantly led by third party IT services, GCCs also hold the potential to be significant drivers of the market. GCCs accounted for 29% of Bengaluru’s transaction volume in H1 2023 and registered 0.19 million square metres (2 million square feet) of lease activity.
On the aspect of rentals, the average transacted rent value moved up by 2% YoY during H1 2023. From the aspect of micro-markets, 33% of the transactions in H1 2023 were registered in PBD East. The demand for office space in this area has dramatically increased over the past five years, rising from a meagre 10% lease share in 2017. The elevated purple line metro corridor’s recent opening, which connects K R Puram and Whitefield, has improved connectivity in the micro-market, thus, boosting occupier interest. PBD east had a supply infusion of 1.9 mn sq ft or 30% of the entire new supply infusion in H1 2023, to capitalize on the expanding occupiers’ appetite.
Shantanu Mazumder, Executive Director – Bengaluru at Knight Frank India said, “Bengaluru continues to be the most popular market for office occupiers despite difficulties including volatility in the IT sector and work-from-home laws. The top commercial districts, ORR and PBD East, are where the majority of office space is leased. Future demand for office space is anticipated to be supported by enterprises returning to the workplace and the expansion of organisations with an Indian focus.”
Despite facing multiple headwinds in the last one year arising from sharp rise in borrowing costs, volatility in IT/ITeS job market, increase in construction costs, Bengaluru’s residential market remained steady in H1 2023.
Bengaluru registered residential sales of 26,247 units, a modest 2% degrowth from the same period in 2022. Notably, the slowdown in sales is mostly caused by the depletion of ready-to-move inventory, which is unable to keep up with the expanding demand. With homebuyers favouring luxury lifestyle and bigger apartments, the share of sales in the INR above 10 mn category has increased from 10% in 2018 to 22% in H1 2023.
As developers continue to profit from the rising demand, residential launches have remained strong. Bengaluru launched 23,542 residential units in H1 2023, an increase of 11% over the previous year.
