Bangalore or Pune - where should you place your commercial real estate bet?

Commercial realty investment: Considering a strategic entry into commercial real estate investment? Pune and Bangalore, identified by Knight Frank as prime office markets, merit your attention. Experts, however, lean towards Pune rather than Bangalore, underscoring Pimpri for its landscape in manufacturing and IT industries. Meanwhile, Kharadi on the eastern front remains a focal point, drawing investor interest as one of Pune's rapidly expanding commercial real estate markets, hosting major IT parks.

"In Pune, Pimpri is noted for its activity in the manufacturing and IT industries. On the eastern side of Pune, Kharadi, with significant IT parks, is recognised as a growing commercial real estate market," Gunjan Goel, Director, Goel Ganga Developments told Republic.

"From an investment perspective, especially in commercial real estate, Pune is considered a noteworthy option. It is viewed not just as a current success in urban development but as having potential influence on future urban development trends in India," said Shashank Vashishtha, Executive Director, Exp Realty India.

Pune: Navigating growth and supply dynamics

Pune's rise as an IT hub began in the early 2000s, anchored in the Western Suburbs micro-market near Hinjewadi. With four key micro-markets, SBD East emerges as the stronghold, representing 55 per cent of the office stock.

Despite annual supply additions averaging 3.5 mn sq ft till 2021, Pune's lower vacancy and robust demand dynamics are drawing major institutions to elevate supply levels. SBD East, with a consistent annual supply and expected vacancy below 10 per cent, stands out with rental growth prospects from Rs 85 psf to Rs 93 psf by 2025.

Caution in the Western Suburbs

SBD West, an emerging market with strong infrastructure and metro connectivity, has seen rapid development in the last 5-6 years. However, the future supply pipeline has tapered, contrasting with the Western Suburbs where vacancy levels surged from 7 per cent to 8 per cent pre-pandemic to 19 per cent currently.

Despite Pune's historical supply additions, the city remains an attractive destination for diverse occupiers across IT, manufacturing, automotive, and managed offices. For investors, a strategic focus on SBD East and SBD West markets is advised, leveraging low vacancies and robust demand, while caution is urged in the Western Suburbs.

Bangalore: The Silicon Valley

In the mid-1980s, global IT firms began flocking to Bangalore's Central Business District (CBD), setting the stage for the city's transformation into the Silicon Valley of India. However, demand quickly outpaced available space, leading to substantial growth in suburban markets like Electronic City and Whitefield by the early 2000s.

In 2002 with the construction of the Outer Ring Road (ORR), easing CBD traffic and propelling Bangalore into the limelight. Today, ORR-South reigns supreme as India's largest office market, boasting over 67 million sq ft. of Grade A stock. However, the market's vacancy has risen from 1 per cent pre-pandemic to 6 per cent, still below the city's 12 per cent average.

Despite challenges, Bangalore maintains its status with a strong talent pool, quality office stock, and infrastructure developments. The average monthly rental values have soared to Rs 100/sq ft, making it a relatively expensive choice for cost-sensitive occupiers.

Whitefield's resurgence and investment insights

Whitefield, Bangalore's second-largest market, gained momentum in 2023 with metro connectivity to the CBD. With prevailing rents around Rs 52-55 per sq ft, Whitefield continues to attract demand, benefiting from spillover demand from the ORR market.

However, caution is advised for investors eyeing peripheral areas with high vacancy levels. For those considering Bangalore, pre-leased office opportunities in ORR and Whitefield markets, backed by good tenant profiles, are recommended.