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Corporate Jul 27, 2012

Why tech biggies still prefer Bangalore over Gurgaon

By Firstbiz Staff

After the initial sluggishness witnessed in the leasing of prime office space in the first quarter of 2012, the rise in absorption across key markets with over 7 million sq ft of office space being absorbed is good news for the real estate sector in the country.

But Bangalore and Hyderabad's property market rules the 'most affordable' bracket with quality construction and amenities.

And guess who is taking advantage of this affordable leasing? Some of the world's tech biggies like Facebook and Amazon.

Bangalore and Hyderabad's property market rules the 'most affordable' bracket with quality construction and amenities. AFP

According to a report in the Economic Times, Facebook, Amazon, Xerox are among companies that have leased office space in India's technology capital Bangalore and Hyderabad, which is home to companies such as Google and Microsoft.

"The general rule of thumb is to provide 75-80 sq ft of usable space for every employee. By this estimate, Facebook's Hyderabad office can accommodate approximately 500 staff and Amazon about 5,000," said the ET article.

But why do IT companies still prefer Bangalore even though Gurgaon has evolved as a hub for BPO companies?

Because Bangalore has the lowest rentals for commercial/office space. In peripheral areas, the rate is around Rs 27-45 per sq foot, which would be upwards of Rs 75 in other cities.

The figure goes up to Rs 75-90/sqft in core regions. In Delhi and Mumbai, the same space is available for Rs 150-200/sqft, or more.

According to the latest office market report from real estate consultancy firm Cushman & Wakefield, Bangalore witnessed the highest absorption of office space in the first six months of 2012 of 3.01 million square feet.

This is because compared to Hyderabad and Chennai, Bangalore's commercial office market has witnessed steady growth in demand, supply as well as rentals. There may have been some fluctuations, but the overall trends are positive.

"With absorption mainly being concentrated in the peripheral locations of the city such as Outer Ring Road, this resulted in an appreciation of rents of up to 10% in the peripheral areas," noted the report. Lower or deferred rent escalations and free car parking slots are also major factors in this preference for Bangalore.

Another reason is space. In a market where companies are increasingly looking at cutting costs by consolidating their different offices within a city to single, large and cheaper location, Bangalore wins hands down, when compared to Mumbai or NCR.

A huge integrated suburb is under development in northern Bangalore, offering space to IT companies and also providing housing. Also a number of infra projects are being constructed to improve connectivity to the suburbs, including a metro rail service that will start later this year, a high-speed rail link to the city's new international airports, and ring roads and elevated expressways.

by Firstbiz Staff

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