BANGALORE AND GURGOAN EMERGE AS TOP 5 TECH CITIES IN ASIA PACIFIC
CBRE South Asia Pvt. Ltd, India’s leading real estate consulting firm, today announced the findings of its latest report titled, “Programming Asia Pacific’s Tech Cities as Global Tech Hubs”. According to the report, despite the absence of any principal city or cluster of the same status as Silicon Valley, technology companies continue to fuel office demand in the APAC region. The burgeoning growth of the region’s technology sector accounted for 23% of total leasing activity in 2018.
Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East and Africa, CBRE, “India is home to an increasing number of tech unicorns and Asia Pacific is increasingly defined as the region leading in the rapid adoption of disruptive technology. However, there is still room for growth in terms of identifying locations where business conditions, innovation and talent come together to form a globally competitive digital hub”.
He further added, “Improved access to incubator and accelerator programmes and a vast pool of skilled IT talent based in the Delhi NCR and Bangalore have supported the cultivation of new ideas. Asia Pacific is home to 8.4 million Science, Technology, Engineering and Mathematics (STEM) graduates, out of which 30% are in India, which is huge”.
While the world’s leading tech hub, the Silicon Valley, encompasses qualities conducive to technology sector growth and development, individual cities in Asia Pacific possess distinct strengths and weaknesses. Leading technology cities, Beijing, Bangalore, Shanghai, Singapore and Gurgaon are creating a dynamic ecosystem and catalysing the APAC technology sector’s growth, thanks to viable business conditions, innovation environment and business friendly cost and availability prevailing in these hubs. The cities scored high in all such aspects and continues to be preferred destinations for a wide array of traditional and new tech companies seeking to establish their presence in Asia Pacific.
Bangalore is the front runner in India, followed by Gurgaon, owing to a deep tech talent pool, cutting edge infrastructure, well-entrenched R&D ecosystem, and the veritable competitive cost advantage.
Dubbed as India’s start-up capital, Bangalore houses over 30% of the country’s start-ups and contributes significantly to India’s tech sector. At 155 million sq. ft., the city has the largest office stock in the country with more than 30 million sq. ft. of office space due for completion before 2021. Rental growth in the city is expected to remain buoyant, as the tech space is slated to expand steadily.
Similarly, Gurgaon has evolved to be the regional pivot of North India’s technology industry. Popularly touted as the ‘millennial city’, Gurgaon houses some of the biggest global and domestic corporations and many more are looking to set up their back-office/front-office operations here. The city’s proximity to the national capital as well as its international airport, makes it an access point for a vast majority of software professionals. The size and quality of its office stock, along with government incentives to the tech sector, have positioned Gurgaon high up on the investor’s radar.
Significantly, CBRE’s findings reflect the multi-nodal approach adopted by technology firms in Asia Pacific, which tend to select locations according to their suitability for certain business functions and units.
Asia Pacific-based tech companies are expanding rapidly. In 2018, Asia Pacific companies accounted for 43% of the revenue generated by the world’s top 100 technology firms. Significantly, Asia Pacific is the fastest growing region for technology investment, with venture capital fundraising quadrupling from US$20 billion in 2014 to US$80 billion in 2018. Large venture capital deals invariably involve investment in the technology sector, particularly in internet and software firms.
Due to this environment, technology companies are also increasingly seeking locations that provide ecosystems capable of accommodating best-in-class technology companies as well as start-ups and unicorns specializing in innovative new products and services. This trend is driving the formation of designated areas for the technology sector in many markets.
CBRE identifies Asia Pacific’s leading technology cities by assessing 15 markets according to their business conditions, innovation environment, and cost and availability.
- Business environment: governmental policies incentivizing technological research and development, availability of funding and market size and competition.
- Innovation environment: The number and scale of start-ups, the quality of education and size of the tech talent pool, and public and private investment in research and development (R&D).
- Cost and availability: Assessed according to occupancy and labour costs for talent along with the availability and cost of office buildings and technology parks.
Complementing the five leading markets, cities including Seoul, Tokyo, Hangzhou, Shenzhen and Hyderabad represent the emerging tier of Asia Pacific’s technology hubs. These cities already host tech industry sub-sectors and demonstrate solid performance across most categories identified by CBRE. Further down, Hong Kong, Sydney, Hsinchu, Taipei and Auckland, all of which rate favorably on certain important aspects, providing more are commoditized and niche services.
Additional key takeaways from the report include:
- Technology not fuelling a rental price boom: The correlation between commercial real estate rents and the rapid rise in a city’s technology sector is not strong. This is attributable to governmental initiatives to provide cost-effective tech parks to house tech firms. Office rental growth in the leading cities is projected to be steady from 2019-2021.
- Gains will be diverse: Technology-influenced price hikes are expected to be led by Bangalore’s commercial real estate market, where the sector’s expansion is set to remain strong. Beijing has also recently seen an increasing number of unicorns and start-ups competing for high quality premium office space, but the availability of other options means rents have only risen at a steady pace.
- Technology demand generating sustained leasing volume: While the proportion of technology sector demand is steadily growing in Singapore, Seoul, Shanghai and Tokyo, it remains under 15% of total leasing volume in these cities given that they play host to a wide range of other industries.
The study was conducted by CBRE between January and March 2019. Respondents were asked to assess 15 markets across Asia Pacific including mature gateway cities and locations where the technology sector occupies 10% or more of total office stock.