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Real Estate

COVID-19 impact? In Bengaluru, companies vacated nearly 3.5 million sq.ft of office space this year

Updated : July 17, 2020 08:13 PM IST

The real estate sector in the country has taken a massive blow from the COVID crisis and the national lockdowns.

Demand fell the most in Pune and NCR markets at 47% and 45%, respectively, according to a Knight Frank report.

Bengaluru accounted for more than half of overall office space surrendered across top eight property markets during the first half of 2020, as the IT sector reduced space take-up in the city by 64 percent from last year.

The real estate sector in the country has taken a massive blow from the COVID crisis and the national lockdowns, with a Knight Frank report stating that transactions in office realty in the first half of 2020 fell the steepest in a decade, 37 percent year-on-year.

Demand fell the most in Pune and NCR markets at 47 percent and 45 percent, respectively, while in Bengaluru and Hyderabad, office market transactions fell by 42 percent and 43 percent, respectively.

The report highlights that 6.3 mn sq.ft of office space in the top eight markets was surrendered by occupiers back to the landlords, largely to cut costs. Bengaluru accounted for almost 56 percent of the space surrendered during H1, 2020, the report said.

Bengaluru’s office demand was dragged down mainly by the Information Technology sector, which the report cited as the “most prominent occupier group” of the city. The IT sector reduced its space take-up by 64 percent YoY in H1, 2020.

The IT sector’s contribution to office space transactions in the city fell to 30 percent in the first half of the year, from nearly 50 percent of all office transactions in the same period last year.

The surrendering of 3.5 mn sq.ft of office space pushed vacancy levels in Bengaluru’s office market to 6.5 percent in the first half of 2020.

The hit to the city’s commercial real estate comes after a stellar year in 2019, when the city saw its highest tally of office space transactions at 15.3 mn sq.ft, which Knight Frank cited was a “feat not achieved by any other market in the country”.

This year, Bengaluru office market saw transactions decline by 42 percent YoY to 4.8 mn sq.ft, which is the lowest H1 period since 2013 when 4.7 mn sq.ft was absorbed in the city.

The brunt of the crisis was felt in the June quarter, since even up to the March quarter, global corporations across sectors were commuting to take up spaces in the city.

The crisis and the lockdown, however, led to procedural delays on ongoing deals, while occupiers put new office enquiries on a temporary hold.

This year, Bengaluru’s commercial real estate sector was salvaged by the manufacturing industry and the co-working sector, with Bengaluru accounting for the highest share of the transactions executed by companies in the two sectors at 45 percent and 39 percent, respectively.

BFSI was another sector that improved its space take-up in the city. BFSI companies such as PhonePe, First Abu Dhabi Bank, BNP Paribas and Fidelity National Financial took up spaces in Bengaluru this year, the report said. From the manufacturing segment, Harman International, GE Oil & Gas, Baker Hughes and Texas Instrument also took up spaces.

Office rents have remained stagnated in the city since April, but the growth seen in the first quarter led to rent growth of 6 percent YoY in the first half of 2020.

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