Demand Slowdown Hits Office Space Market

Aug. 7, 2008 - PRLog -- With companies, particularly in the IT and BPO industry, holding back their expansion plans due to slowdown fears, the commercial real estate market posted a lacklustre show in the second quarter of 2008.

The June quarter saw office space demand lagging far behind the supply levels of 18.07 million sq. ft. across major cities, as companies turned cautious. According to Cushman & Wakefield, the demand in the quarter was at 9.74 million sq ft, dominated by absorption (where companies move-in or begin fit-outs) of 6.36 million sq ft, and only 3.38 million sq ft in fresh pre-commitments. "There are certain micro-markets like Noida (NCR), and Rajiv Gandhi Salai (Chennai), which recorded excess supply for this quarter thus increasing the overall vacancy rates," it said.The second quarter witnessed stable rental values across micro-markets in the major cities with some central business district (CBD) and off-CBD locations witnessing rental hikes of 3-5 per cent over the last quarter. Some peripheral locations in NCR (National Capital Region) and Chennai, however, saw a correction in rentals largely due to excessive supply as well as deferred development plans of various proposed projects.

Exceptions

Pune was an exception to the stable rentals where all micro markets saw a rise in rental values in the range of 2-7 per cent over the last quarter. Malad in Mumbai recorded the highest quarter-on-quarter rental appreciation at 11 per cent, due to lack of supply of Grade A properties and with most of the new supply already pre-committed. Dalhousie (Kolkata) too witnessed high rental increase of 10 per cent, due to high demand and lack of redevelopment potential or fresh supply.Against a demand of 1.97 million sq ft in Bangalore during the June quarter, the supply stood at 3.11 million sq ft; whereas in Chennai the demand stood at 1.55 million sq ft (supply at 3.80 million sq ft). Hyderabad saw a demand of 0.47 million sq ft (0.75 m sq ft of supply), even as Mumbai logged an office space demand of 1 million sq ft (4.09 million sq ft supply). In NCR, compared to a demand of 3.30 million sq ft, the supply was at 4.34 million sq ft. "There has been a slowdown in the actual transactions witnessed in the second quarter of 2008 owing to a number of factors, primary amongst which is a general slowdown of economy. However, the economic fundamentals of India are strong and we should expect demand pick-up by the fourth quarter of the year," said Mr Kaustuv Roy, Director, Tenant Strategies & Solutions, India, Cushman & Wakefield. ......

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