Oversupply of Office Space will Depress Rentals by 2015

Nov. 10, 2011 - PRLog -- Oversupply of Office Space will Depress Rentals by 2015
78 M Sq Ft To Be Created, Says Report

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By StampDutyRegistration

Mumbai is expected to witness a glut of office space in the near future. By 2015, a total of 78 million square feet of office space will be created in the city, said an annual report by global real estate consultants. The report said the significant oversupply is expected to outstrip demand for approximately 33.9 million sq ft by 125% by 2015, thereby putting a downward pressure on office rentals in the financial capital.

Cushman and Wakefield and Global Real Estate Institute’s report ‘Embracing Change – Scripting the Future of Indian Real Estate’ estimated the total commercial office space demand to be approximately 200 million sq ft in top seven cities as against a marginally higher supply of 243 million sq ft. The report has analysed demand for top seven cities — National Capital Region (NCR), Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata — estimated demand and supply for the years 2011-2015 (both years included).

After Mumbai, the highest estimated supply of Grade A offices will be seen in the NCR at 40 m sq ft, Chennai at 30 m sq ft, and then Pune at 29 m sq ft. In an indicator of the potential development, Bangalore will be the only city where demand for office space of approximately 57.3 m sq ft will outstrip the supply of 26 million sq ft, which will be constructed by 2015.

The report said that a scarcity of options and lesser availability of space is likely to prevail in Bangalore unless the second generation supply increases. This may put an upward pressure on rentals in select micro markets, the report said. On the other hand, Kolkata is expected to have the lowest demandsupply gap owing to the reduced pace of supply and the second highest growth in demand during the next five years.

Barring Bangalore, all the other cities are expected to experience some oversupply situation such as in the NCR at 34.4 m sq ft.During this period, cities such as Kolkata, Hyderabad and Chennai are expected to see a better rate of growth in comparison to others. Arvind Nandan, executive director, consultancy services, Cushman & Wakefield, said that since the economic slowdown in 2008-2009, corporate houses have been cautious in their expansion plans.

“The demand had considerably reduced. As the office supply will now exceed demand, we are going to see an increase in vacancy in the next five years. Corporates will now look for better value proposition in terms of rents, maintenance cost, parking and so on, while expanding and consolidating operations.”


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