Oversupply suffocates Bangalore’s property rental - Indian Real Estate Forum

bikash · 22-02-07

Firmly established as a global technology hub, Bangalore’s IT suburb Whitefield has seen property prices soar consistently over the past five years, until now. In a marked shift, commercial property rents have seen a drop of over 30% in the last one year. A correction has taken place in the IT neighbourhood. The key reason, apart from connectivity-related problems, is oversupply.

Commercial absorption in Whitefield stood at a little over 2 million sqft in 2006. This year, the demand-supply disconnect is to widen. The supply situation is pegged at over 6 million sqft, while demand continues to hover at around 2 million sqft — an oversupply of roughly 4 million sqft. “The challenge in a micro-market like Whitefield is not the lack of demand, but a situation of oversupply, a common problem among metros in India.

Also, infrastructure development has failed to keep pace with the real estate growth story. With newer IT centres emerging away from the two main IT clusters, Electronic City & Whitefield, campus developments are being forced to lower rentals in Whitefield in order to attract IT firms. The shift is towards campus developments coming up in close proximity to the city’s Outer Ring Road.

The other emerging IT centres are Sarjapur Road and Old Madras Road, where accessibility is better than it is in Whitefield. As a result, the going rate in the case of commercial rentals in Whitefield, which stood at around Rs 30 per sqft a year ago for an ‘A’ grade property, has come down to Rs 20 per sqft today. Rentals for ‘B’ grade properties are even lower, quoted at around Rs 17 per sqft. ITPL too has witnessed a slight fall in rentals.

While peak-time rentals were at Rs 50 per sqft, the same today is at Rs 44. With the situation getting worse by the day, ITPL rentals could end up in the Rs 35-40 bracket in a year’s time, said an industry analyst.

26-02-07

You quote a rate of maybe 40 Rs per sq ft in the last line of your post. Are properties like these for sale today and if so, at what kinds of capitalization rates (going in yields)? In other words, if I buy a property in Bangalore that generates 40 Rs of rental income per sq ft, how much would I have to pay to purchase this same property, per sq ft?

22-02-07	#1
bikash New Member Join Date: Jan 2007 Posts: 25 Thanks: 0 Thanked 0 Times in 0 Posts	Oversupply suffocates Bangalore’s property rental Firmly established as a global technology hub, Bangalore’s IT suburb Whitefield has seen property prices soar consistently over the past five years, until now. In a marked shift, commercial property rents have seen a drop of over 30% in the last one year. A correction has taken place in the IT neighbourhood. The key reason, apart from connectivity-related problems, is oversupply. Commercial absorption in Whitefield stood at a little over 2 million sqft in 2006. This year, the demand-supply disconnect is to widen. The supply situation is pegged at over 6 million sqft, while demand continues to hover at around 2 million sqft — an oversupply of roughly 4 million sqft. “The challenge in a micro-market like Whitefield is not the lack of demand, but a situation of oversupply, a common problem among metros in India. Also, infrastructure development has failed to keep pace with the real estate growth story. With newer IT centres emerging away from the two main IT clusters, Electronic City & Whitefield, campus developments are being forced to lower rentals in Whitefield in order to attract IT firms. The shift is towards campus developments coming up in close proximity to the city’s Outer Ring Road. The other emerging IT centres are Sarjapur Road and Old Madras Road, where accessibility is better than it is in Whitefield. As a result, the going rate in the case of commercial rentals in Whitefield, which stood at around Rs 30 per sqft a year ago for an ‘A’ grade property, has come down to Rs 20 per sqft today. Rentals for ‘B’ grade properties are even lower, quoted at around Rs 17 per sqft. ITPL too has witnessed a slight fall in rentals. While peak-time rentals were at Rs 50 per sqft, the same today is at Rs 44. With the situation getting worse by the day, ITPL rentals could end up in the Rs 35-40 bracket in a year’s time, said an industry analyst.

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26-02-07	#2
jbrzeski Unregistered User Posts: n/a	You quote a rate of maybe 40 Rs per sq ft in the last line of your post. Are properties like these for sale today and if so, at what kinds of capitalization rates (going in yields)? In other words, if I buy a property in Bangalore that generates 40 Rs of rental income per sq ft, how much would I have to pay to purchase this same property, per sq ft?