After several years of ever steepening prices the real estate market in Bangalore and Chennai is finally showing signs of moderation.
A surge in supply usually follows a surge in demand and that is exactly what we have seen in the IT hubs of the two biggest cities in southern India. Whitefield in Bangalore and Old Mahaballipuram Road in Chennai became synonymous with technology in the early 2000s.
Developers piled into the area and starting constructing like crazy. However, real estate prices rose to levels that encourage the IT companies to look further afield.
In Bangalore’s Whitefield suburb, supply outstripped absorption by 300,000 sq ft in 2007 and about 8% of the developed area remained vacant, data from real estate consultancy Cushman & Wakefield (C&W) show. On the Old Mahabalipuram Road (OMR) area South of Chennai just nine commercial deals were done in 2007. Of the four million sq ft that came into the market last year, only 1.7 million sq ft were absorbed even as rentals fell by 18 % and the vacancy rate was up to 11 %, again according to C&W data.
“The key factor contributing to the oversupply is the consistent overpricing of projects in both micromarkets. Developers who priced projects at Rs 4,000 per sq ft were unknowingly killing their golden goose in a sense,” Shriram Properties managing director M Murali said.
Whitefield and the OMR cluster, where IT and technology-enabled services firms occupy most of the office space, could be delivered another blow when a government scheme which provides tax incentives to companies in so-called “technology parks” comes to an end next year. “STP (Software Technology Park) units and business parks in both locations will take a beating in rentals with the sunset clause (for the Software Technology Parks of India scheme) ending in March 2009.
The Indian IT story therefore continues to spread out. It started in Mumbai and Delhi, moved to Gurgaon and Powai and then to Bangalore and Chennai. Now real estate prices have pushed the IT companies further afield once again to Ahmedabad, Cochin and Chandigarh amongst others.
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