While demand for residential space was mostly sluggish in 2011, demand for office and retail space remained healthy in Bangalore.

The market for commercial space is estimated at 50 mil sq. ft. across the country. The average yearly absorption rates in Bangalore and NCR are about nine mil sq. ft. While six mil sq. ft. is absorbed in Mumbai, the rates are 4 to 5 mil sq. ft. each in Chennai and Hyderabad.

However, last year, Bangalore topped the list with the highest absorption of more than 13 mil sq. ft. of non-captive office space, about 2 mil sq. ft. more than the levels seen in 2010. About 80% of this came from the IT & ITES sector.

“Consolidation of real estate portfolios by Indian and MNC IT companies has boosted the real estate market in Bangalore,” said Karun Varma, MD (Bangalore and Kochi), and Jones Lang LaSalle India. “Demand for back offices and contact centres has resulted in continued strong growth in suburban real estate development, with IT companies lining up their investments for setting up new facilities in the city,” he added.

Experts predict demand for 16 mil sq. ft. of office space in 2012 in India’s Silicon Valley, which will be the highest ever in the country. This will be mostly due to the new SEZ norms and direct tax code (DTC) that will come into play.

About 75% of the 16 mil sq. ft. office space will be in upcoming SEZ regions. Recently, global investment banking firm Goldman Sachs took up 1 mil sq. ft. of office space developed by Kalyani Developers on the outer ring road. “Companies see an opportunity from a tax break perspective; so, many are planning to migrate their future work to SEZ parks,” said Shrinivas Rao, CEO (Asia Pacific), Vestian Global Workplace Services.

In the next three years, an additional 28.8 mil sq. ft. of office space will be available in the region, for which projects are already under way. “We are expecting to see about 6 to 7 mil sq. ft. of this to come up in 2012,” said Rao.