IT_ITeS_Growth_Corridor_Series_Bangalore_ORR.pdf

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Bangalore: Outer Ring Road IT/ITeS Growth Corridor Series September, 2010

Bangalore: Outer Ring Road IT/ITeS Growth Corridor Series

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Hebbal

Silk Board Jn.

KR Puram

Marathahalli

18.6 million sqft of operational Grade A office space

75% of Bangalores total operational IT/ITeS SEZ space

of Bangalores total operational IT space 25%

5% of office space vacant as of H1 2010

95% of the office space occupied by IT/ITeS companies

3.3 million sqft Grade A office space under construction 28 million sqft planned Grade A office space

ORR 2010 & Beyond


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Executive Summary

The Outer Ring Road stretch from Hebbal to Silk Board Junction, popularly referred to as ORR, has developed in the last 10 years as an Information Technology (IT) growth corridor and accounts for almost 25% of Bangalores total IT space. Currently, global IT clients such as IBM, Accenture, Cisco, Philips, Intel, Honeywell and others operate in this micro market.

ORR scores over other IT growth corridors of Bangalore in terms of proximity to Central Business District (CBD), availability of large land parcels, proximity to citys talent pool and favourable development regulations. Ongoing infrastructure works aimed to transform the ORR into a signal free corridor and the upcoming hotel and retail projects will further enhance connectivity and support infrastructure in this micro market.

ORRs IT growth corridor story commenced in early 2000s with land acquisition and allotment efforts by Karnataka Industrial Areas Development Board (KIADB) to promote IT developments. Further, single window clearance system adopted by Karnataka Udyog Mitra (KUM) supported the KIADBs initiative. Prior to commencement of Bagmane World Technology Center & Ferns Icon in 2008, developmental activity was largely concentrated between Marthahalli Sarjapur stretch primarily due to favourable zoning regulations and availability of large land parcels. Currently, the Marthahalli Sarjapur and Hebbal KR Puram stretches account respectively for 57% & 36% of the total Grade A office space operational along the ORR. In future, KR Puram - Marthahalli stretch is likely to witness almost 17% of the total IT space being developed in this micro market.

ORR predominantly has large multi-tenanted IT parks with almost 95% of the total Grade A office space being occupied by IT and ITeS companies and the proportionate share between IT and ITeS segments is 57% and 42% respectively. As on date ORR has over 18 million sqft of operational IT space and approximately another 3.3 million sqft under construction. The planned supply along this micro-market is estimated to be 28 million sqft. ORR constitutes for 75% of the Special Economic Zone developmental activity in the city and this trend is expected to continue as this micro market has over 300 acres of land available for development under SEZ category.

Current levels of vacancy of Grade A office space along ORR is just over 1 million sqft and likely to drop in H2 2010. Even during the global meltdown phase (Q4 2008 2009) average rentals for Grade A office space in ORR relatively witnessed a lesser drop compared to other peripheral markets Whitefield and Electronics City signifying the balance between supply and demand levels.

While ORR continues to remain an attractive IT growth corridor rental levels in short term are expected to rise owing to very low existing vacancy levels and limited projects under construction. However in medium to long term the prices will stabilize owing to planned supply.


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Emergence of ORR as a growth corridor for IT developments Transformation of Bangalore from a Garden City to Silicon Valley of India started in 1980s. Since the

beginning, IT hubs were predominantly concentrated in southern and eastern regions of the city namely

Secondary Business Districts (SBDs) of Airport Road, Bannerghatta Road, Koramangala & Indiranagar and

Government promoted Peripheral Business Districts (PBDs) of EPIP, Whitefield & Electronics City, Hosur

Road. This resulted in emergence of areas around SBD - Koramanagala / Indiranagar / BTM Layout / Sarjapur

Road in southern and eastern pockets of Bangalore as preferred residential locations by IT population.

ORRs IT growth corridor story commenced in early 2000s with land acquisition and allotment efforts by Karnataka Industrial Areas Development Board (KIADB) to promote IT developments. To facilitate prompt developments, KIADB acquired large land parcels along ORR and ensured conversion of the same for industrial hi-tech use. Further, single window clearance system adopted by Karnataka Udyog Mitra (KUM) supported KIADBs initiative. With the completion of Outer Ring Road (ORR) in 2002, a new growth corridor opened up for IT development in Bangalore.

The announcement of Special Economic Zone (SEZ) policy in 2005, led to the export oriented IT/ITeS sector to focus their growth in upcoming SEZ parks due to expiry of the incentive structure under the Software Technology Parks of India (STPI) scheme. Readily available large land parcels along ORR and Government initiative of the revised Bangalore Master Plan 2007-15 provided impetus to IT development through favorable zoning regulations.

With the commencement of Bangalore International Airport (BIA) in 2008 in Devanahalli, the ORR stretch: Hebbal to Silk Board Jn. gained importance as it serves as the main artery between BIAL and major IT hubs of Bangalore i.e. Whitefield & Electronics City.

CBD

Whitefield

Old Airport

KR Puram

Yeshwantpur

Kengeri

Electronics City

NH 7

NH 209SH 17

NH 4NH 7

NH 4

MagadiRoad

ITPL

Marathahalli

CV Raman Nagar

Indiranagar

Old Airport Road

BTM Layout

Bannerghatta

Sarjapur Road

Key IT Hubs in 2000

Major State and National Highways

Residential Locations preferred by IT

working population

Silk Board Jn.

Koramangla

NTo BIAHebbal

ORR (Hebbal to Silk Board Junction)

Figure 1: Bangalore-Early IT Hubs


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The figure below summarizes the key events (policy level, IT infrastructure development promoted by Government and completion of BIA) which promoted ORR to become a IT growth corridor of Bangalore

Commissioning

of BIA

Commencement of

construction works

for ORR

2010

2005

2000

1995

1990

1978

1991

1994

1998

Policy Level

Initiatives

IT

InfrastructureIT Developments along ORR

Formulation of

STPI Scheme

Annoucement

of SEZ Act

2007

Formation of

Electronics City

1999

2008

Formation of EPIP

Zone in Whitefield

Announcement of SEZ Act in 2005, favorable zonal regulations triggered growth along ORR

Presence of IT working population dominant residential zones in eastern and southern regions of

Bangalore due to development of IT hubs- Electronics City and Whitefield supported the growth of

IT developments along ORR

Post commissioning of BIA in 2008, the ORR stretch- Hebbal to Silk

Board Junction has gained importance as it acts as the main connection

between BIA and major IT hubs

Completion of ORR

Key

Connectivity

Intiatives

Commission of

ITPB

(JV between KIADB

& Ascendas)

2002

Release of

Bangalore

Master Plan

Prestige Tech Park

Salarpuria Hallmark

2007

Salarpuria Softzone

Vrindavan Tech Village

Cessna Business Park

2006

Salarpuria Touchstone

Adarsh Tech Park (P-I)

Ferns Icon

2005

Global Technology Park

Pritech Tech Park

Bagmane World Technology Center

1999

1996

2008

2009

WIPRO

Intel Technologies

Manyata Embassy Business Park

RMZ Ecospace

RMZ Ecozen

Salarpuria Supreme

Announcement

of BIA

Figure 2: ORR-Emergence as IT Growth Corridor


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Advantage ORR

The following characteristics of ORR stretch

between Hebbal and Silk Board Jn. makes it one of

the most attractive IT growth corridors of

Bangalore:

Availability of large land parcels

Designated as Mutation Corridor**

Zoning of land to Industrial Use (Hi-Tech) thereby increasing the permissible FSI up to 3.25

Proximity to established IT talent pool & established residential hubs

Proximity to CBD (M.G. Road) compared to other peripheral locations of Bangalore

Ongoing construction of hotels, malls, large Grade A residential developments

Other initiatives by Government,

- Entire ORR Stretch to be a signal free road by end 2011, as Bangalore Development Authority is constructing 8 flyovers and 2 underpasses at various intersections.

- Widening of Old Madras Road, Hennur Road & Banaswadi Road under progress.

This ORR stretch of 31 kms exhibits different characteristics and has varied potential and activity for IT developments. Here, we have categorized this stretch into 4 parts based on intersection with highway/major road:

Stretch 1: Hebbal - KR Puram

Stretch 2: KR Puram Marathahalli

Stretch 3: Marathalli Sarjapur Road

Stretch 4: Sarjapur Road Silk Board Jn.

** Mutation Corridor: The subject stretch of ORR as been designated as Mutation Corridor under Revised Bangalore Master Plan,

2007. As per this provision, plots with frontage equal to or more than 12m are eligible for conversion of land-use to commercial

and the permissible FSI being in the range of 2.75 to 3.25 (depending on the plot size, frontage and abutting road width). In addition

to the frontage, the entry and exit to the plot should be provided along the mutation corridor.


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The following table summarizes the potential of these stretches for IT developments:

Table 1: ORR-Potential for IT Developments

Stretch 1: Hebbal to KR PuramStretch 2: KR Puram to

Marathalli

Stretch 3: Marathalli to

Sarjapur

Stretch 4: Sarjapur to Silk

Board

9.5 13.5 15 11

32 42 47 52

Limited Available Available Limited

Residential;

Industrial (Hi-Tech Zone)Residential

Industrial (General); Industrial

(Hi-Tech Zone)

Sarjapur to Iblur: Iblur Army

Camp

Iblur to Sarjapur: Iblur Army

Camp

Sarjapur to Silk Board:

Residential

1.75 - 3.25 (Residential)

2.0 - 3.25 (Industrial - Hi Tech

Zone)

1.75 - 3.25 (Residential)2.0 - 3.25 (Industrial - Hi Tech

Zone)1.75 - 3.25 (Residential)

~15% ~25% ~40% ~25%

Dollar's Colony, RT Nagar,

Frazer Town, Banaswadi, Kasturi

Nagar, Mahadevpura, Kalyan

Nagar, Nagwara, Hebbal, HBR

Layout, Hennur Road,

Thannisandra Road, Bellary

Road, Whitefield Road

Kasturi Nagar, Banaswadi, KR

Puram, Mahadevpura, Yemalur,

CV Raman Nagar, Indiranagar,

Marathalli, AECS Layout,

Bellandur, Karthik Nagar,

Doddenakkundi, Whitefiled

Road, Varthur Road

Koramangala, HSR Layout, BTM

Layout, Madiwala Bellandur,

Marathalli, Yemalur, Brookefield,

Sarjapur Road, Haralur Road,

Devarabeesanahlli,

Kadubeesanahalli, Hosa Road,

Varthur Road, Hosur Road

Koramangala, BTM Layout,

HSR Layout, Madiwala,

Bellandur, Jaya Nagar,

Banashankri, Bannerghatta

Road, Sarjapur Road, Haralur

Road, Devarabeesanahalli,

Kadubeesanahalli, Hosa Road,

Hosur Road

Royal Suites (Serviced

Apartments)

Hotel Seven (4 Star) and Lotus

Park (Business Hotel)

Ivy (Business Hotel)

Orange Hotel (Business Hotel)None

Hotel Westin (246 rooms) None

Novotel IBIS (559 rooms)

Park Plaza (237 rooms)

Palm Retreat (200 rooms)

Shangri-La (450 rooms)

Salarpuria (250 rooms)

Marriott

None Soul Space Arena Soul Space Spirit None

Moderate Moderate High Low

Bangalore International Airport

(BIA)

CBD (km)

Resident IT Population within the catchment

Major residential areas (within

30 mins)

Existing/ Growing/ Upcoming

Attribute

Existing Hotels

Overall Potential for IT

development

Business and Social infrastructure

Upcoming Retail Malls

Upcoming Hotels (Till 2012)

Main Land-use

Availability of land for IT

development

Approximately % of total

Bangalore IT Population

residing within 30 mins travel

time from ORR stretch

Permissible FSI

Zoning and Reulatory Attributes

Land Availability

Distance Chart


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Hebbal

Bellary Road

Banaswadi

Kasturi Nagar

Ramamurthy Nagar

HBR Layout

Frazer Town

CV Raman Nagar

Kaggadaspura

Mahadevpura

Kartik Nagar

AECS Layout

OMBR Layout

Nagwara

CBD

Hennur

Hormavu

Indiranagar

DRDO

BEL

KR Puram

Hebbal

Sanjay Nagar

RT Nagar

BEML

To Hosakote

To BIA

Hotel Westin

Soul Space

Arena

4

1

2

HPTo Whitef ield

3

BTM Layout

HSR Layout

Hosur Road

Koramangala

Marathahalli

BEML Layout

Haralur Road

Sarjapur Road

Yemalur

Bellandur

SarjapurSilk Board Jn.

Marathahalli

To Whitef ield

Old Airport

To SarjapurTo Electronics City

NAL

Soul Space

Spirit

Marriott

Palm Retreat

Serviced

Apartments

Salarpuria Merill Lynch

Novotel IBIS

Shangri-La

Park Plaza

5

7

169

10

1112

WIPRO

15

17

6

8

14

13

18

INTEL

NAL

HAL

ISRO

N

Figure 3: ORR-IT Growth Corridor

Legend

STPI Parks Existing Malls / Hyper-markets

SEZ Parks Upcoming Malls

SEZ / STPI Parks Existing Hotels/ Serviced Apartments

Under-construction STPI Parks Upcoming Hotels/ Serviced Apartments

Under-construction SEZ Parks PSUs R & D Organizations

BTS facilities Upcoming Under-passes

Residential Locations Upcoming Flyovers

PotentialGrowth Regions

Legend









List of Existing, Upcoming and Proposed IT Park

Legend








PotentialGrowth RegionsLegend









1 Manyata Tech Park 7 Prestige Tech Park 13 Global Technology Park

2Bagmance World Technology

Centre8 RMZ Ecozen 14 Pritech Park

3 Fortune City 9 Salarpuria Hallmark 15 Vrindavan Tech Village

4 Ferns Icon 10 Salarpuria Touchstone 16 Adarsh Tech Park

5 Salarpuria Supreme 11 Salarpuria Softzone 17 Cessna Business Park

6 Prestige Exora Business Park 12 RMZ Ecospace 18 Umiya Business Bay


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IT developments along ORR

ORR stretch accounts almost 25% of the Bangalores total IT space.

- The Hebbal to K.R. Puram stretch is dominated by office space supply from Manyata Embassy Business Park.

- Gopalan Enterprises Fortune City IT/ITeS SEZ and Bagmane World Technology Centre - Phase II will be key driver for office space supply between K.R. Puram to Marathahalli stretch. Further, availability of land for future development assures more activity in short to medium term along this stretch.

- IT parks located between Marathahalli - Sarjapur Road account for more than 55% of the total operational office space along ORR. Large land parcels locked with existing developments ascertain trend to continue in future too.

- Sarjapur - Silk Board Jn. stretch witnessed no IT space activity mainly on account of limited land availability and existing zoning regulations.

Currently, the Marthahalli Sarjapur Road & Hebbal KR Puram stretches account for 57% & 36% of the total Grade A office space operational along the ORR.

In future, KR Puram - Marthahalli stretch is likely to witness more IT space activity and almost 17% of the total IT space along ORR would be along this stretch.

Name of the Park Category

Operational Area

as of H1 2010

(in million sqft)

Key Tenants

Manyata Embassy

Business ParkSTPI & SEZ 6.80 IBM, ANZ, Philips

Bagmane World

Technology CentreSEZ 1.00 EMC

2

Ferns Icon STPI 0.38Lenovo,

STMicroelectronics

RMZ Ecospace STPI 2.00Accenture, AOL,

Capgemini

Pritech Ecospace SEZ 1.80Quest, Firstsource,

Symphony Services

Vrindavan Tech

VillageSEZ 1.48

Cisco, OPI,

T-systems

Prestige Tech Park STPI 1.00Oracle, Nokia,

Yodlee

Salarpuria Softzone STPI 0.90SAP, Genpact, Akamai

Technologies

Adarsh Tech Park SEZ 0.77Honeywell, Subex,

KPIT Cummins

Salarpuria Hallmark STPI 0.42 Teleca, Quest, Nokia

Salarpuria

TouchstoneSTPI 0.42

MTS, Mentor

Graphics, ARM

Global Technology

ParkSTPI 0.27 LSI Logic

Salarpuria Supreme STPI 0.21Blue Coat, Motorola,

Ocwen

RMZ Ecozen STPI 0.11 Aricent

Hebbal to K.R. Puram

K.R. Puram to Marathahalli

Marathahalli to Sarjapur

Name of the Park CategoryExpected

Completion Date

Area

(in million sqft)

Prestige Exora

Building 1STPI Q1 2011 0.67

Adarsh Tech Park SEZ Q4 2010 0.50

Umiya Business Bay STPI Q1 2011 0.45

Vrindavan Tech Village

Phase II (2A)SEZ Q4 2010 0.32

Table 3: ORR-Upcoming IT Parks

Table 2: ORR-Operational IT Parks


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Since 2004, over 18 million of office space has been constructed on ORR. In H1 2010, ORR witnessed absorption of almost 1.5 million sqft and currently has a vacancy rate of 5% for office space (1 million sqft). This is expected to further drop in H2 2010 to as low as 3%.

Recent trend of IT companies moving to SEZs may be due to revised Direct Tax Code (DTC) published in Q2, 2010. As per revised draft of DTC, units coming up in SEZs after the implementation of the Code from April 1, 2011, would not be entitled for Tax holiday.

Lower vacancy rates and very little construction activity (3.3 million sqft) has made developers including Primal Projects (Pritech Phase 2), Bagmane (World Technology Center Phase 2), revisit the construction plans and commence construction of their respective projects in H2 2010.

Untill 2007, developments on the ORR were predominantly Software Technology Parks such as RMZ Ecospace, Manyata Embassy Business Park etc. Post 2008 the development trend on this stretch has been towards SEZ projects such as Vrindavan Tech Village, Pritech Park, Cessna Business Park, and Manyata Embassy Business Park (SEZ).

Around 55% of the operational space falls under SEZ category and accounts for more than 75% of operational SEZ space in Bangalore; considering 80% of the ORRs future supply is in SEZ category the micro market will continue to dominate in this category of office space.

Stretch Operational U/C Planned Total

Hebbal - K.R.Puram 36% 11% 15% 23%

K.R.Puram - Marathahalli 7% 30% 22% 17%

Marathahalli - Sarjapur 57% 59% 63% 61%

18.6

3.3

27.8

17.6

0.43.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Operational U/C (2010 - 2012)

Planned (2012 and beyond)

sqft

(in

mil

lio

ns)

Supply Absorption

Vestian Estimate

0

1

2

3

4

5

6

7

8

sqft

(in

mil

lio

ns)

Supply (STPI) Supply (SEZ)

0%

2%

4%

6%

8%

10%

Absorption (STPI) Absorption (SEZ) Vacancy in %

2006 2007 2008 2009 2010

Vestian Estimate

Table 4: ORR-IT Space Distribution

Figure 4: ORR-Grade A Office Space Supply

Figure 5: ORR-Supply & Absorption Trend


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Planned supply is largely concentrated in the existing parks itself:

- Under STPI category, existing Global Technology Park and Manyata Embassy Business Park has land for future developments. New entrants include Prestige Exora Business Park and Umiya Business Bay.

- Under SEZ category, developers of existing parks have more than 300 acres of land for future development. Leading projects include Pritech Park, Vrindavan Tech Village, Adarsh Tech Park and others.

During global meltdown phase, Q4 2008 2009, average rentals in ORR witnessed drop of only 20% compared to 30 - 40% drop in other PBDs of Bangalore. This signifies the balance in demand and supply of real estate space along ORR.

ORR predominantly houses multi-tenanted IT developments with an exception of Intel Campus which is an owned facility.

Considered the hub of large IT developments with 5 out of 20 existing IT parks having more than one million sqft operational spaces. This number is expected to increase to 8 by 2012.

0

20

40

60

80

100

2006 2007 2008 2009 H1 2010

INR

/sq

ft/

mo

nth

CBD Suburban ORR Peripheral

OccupierArea Occupied

(in million sqft)

IBM & IBM Daksh

Cisco Systems

Honeywell

Philips

EMC2

Nokia

Outsource Partner International

T-Systems

AOL

Accenture

Capgemini

Nokia-Siemens

ANZ

LSI Logic

> 0.5

> 0.2

> 1.0

Company BuildingArea

(in sqft)

Nokia Technologies Vrindavan Tech Village 1,26,000

Brocade Vrindavan Tech Village 90,000

Akamai Technologies Salarpuria Softzone 70,000

Symphony Services Pritech Park 60,000

Teleca Salarpuria Hallmark 43,000

Cynivwea RMZ Ecospace 42,000

Ocwen Financials Salarpuria Supreme 28,000

Figure 6: Bangalore-Rental Value Trend

Table 5: ORR-Key Occupiers

Table 6: ORR-Key Lease Transactions (H1 2010)


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IT/ITeS companies occupy more than 95% of the total operational space of which, 80% are Multi-

National Companies (MNCs).

IT companies located in this micro market operate in software development, R&D and engineering

services space. ITeS companies provide knowledge and back-end services in IT & Telecom, BFSI, and

Retail and Healthcare verticals.

0%

10%

20%

30%

40%

50%

Software Product

Development

Engineering and R&D

Support Services and

Training

57%

42%

1%

IT ITeS Others

0%

10%

20%

30%

40%

50%

IT and Telecom BFSI Healthcare Retail/ Manufacturing/

Media & Entertainment

Others

Figure 7: ORR-Occupier Profile


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Future of ORR for IT developments ORR is expected to continue to remain an attractive IT/ITeS growth corridor of Bangalore and improve further with planned completion of numerous flyovers/ underpasses between Hebbal and Silk-Board Jn. by end of 2011 and upcoming business & social infrastructure.

Rentals of office space are expected to rise to some extent in short term mainly due to low vacancy rates and fewer under construction projects; however, only nominal rise in rentals is expected due to existing high vacancy rates in PBDs such as Whitefield, Electronics City and others.

The current most active ORR stretch Sarjapur Road Marthahalli would be extended till KR Puram, as Marthahalli KR Puram stretch is expected to witness high IT space activity in coming years.

While ORR over the years has emerged as the most preferred office space destination, this micro market foresees a few challenges including:

- Uncertainty on future of tax holiday for SEZ units post implementation of DTC in April 1, 2011 may have adverse effect on ORR, atleast in short term, as most of the office space supply along ORR is scheduled under SEZ category.

- Growth of ORR may slowdown due to the shift in focus towards Bangalore North for upcoming developments.


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ACRONYMS

ORR Outer Ring Road

Jn. Junction

MNCs Multinational Companies

IT Information Technology

ITeS Information Technology Enabled Services

CBD Central Business District

SBD Suburban Business District

PBD Peripheral Business District

ITPB International Tech Park, Bangalore

KIADB Karnataka Industrial Areas Development Board

JV Joint Venture

EPIP Export Promotion Industrial Park

SEZ Special Economic Zone

STPI Software Technology Parks of India

DTC Direct Tax Code

FSI Floor Space Index

PSU Public Sector Undertakings

BIA Bangalore International Airport

Q1 Quarter 1 (January March)

Q2 Quarter 2 (April June)

H1 First Half (January June)

BTS Built to Suit

BFSI Banking Financial Services and Insurance

R&D Research and Development

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IT_ITeS_Growth_Corridor_Series_Bangalore_ORR.pdf