Realty bites tech hubs in Bangalore, Chennai

The stock of unoccupied properties with real estate developers in the main technology hubs of Bangalore and Chennai is mounting and indications are that their problems will only get worse as software companies head towards greener pastures.

In Bangalore’s Whitefield suburb, once a magnet for IT firms, 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. Prices are stagnating and the situation is deteriorating. In the first three months of 2008, the demand-supply mismatch was more than a million sq ft.

If Whitefield is in a bad way, the Old Mahabalipuram Road (OMR) technology cluster on the outskirts of Chennai is deep in the doldrums, with just nine deals in the whole of 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. Most of the more than half a million sq ft that entered the market between January and March have gone abegging.

Property developers’ greed must take a major portion of the blame for the current plight, even insiders say. “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.