The global meltdown has impacted the office space sale in India in the quarter ending September 30, says a report from CB Richard Ellis. Many corporates, especially in the information technology (IT) and IT enabled services (ITES) sectors seemed to have postponed their expansion plans.
This, combined with liquidity constraints and inventory buildup, has seen the uptake of office realty across the seven key cities, namely Delhi NCR, Mumbai, Kolkata, Hyderabad, Pune, Chennai and Bangalore.
According to Anshuman Magazine, chairman and managing director, South Asia for CB Richard Ellis, "The global economic slowdown has started to show early signs of impact on the office market. The third quarter of 2008 has seen a decline in the office space absorption across the country. Going forward this is expected to keep office rentals under check."
With this, developers and landlords have become more flexible and open to negotiation on their quoted commercial terms which clearly reflects the pressure that is being felt in the market. According to the report, rentals in the National Capital Region (NCR) are likely to remain stagnant for the next few quarters, even as demand for corporate office space is not likely to be affected, as IT/ ITeS has a smaller presence here.
For instance, Grade A properties in Connaught Place, the city's central business district (CBD) have seen monthly average rentals falls from Rs 340 per sq ft. in June to Rs 300 in September. Similarly, Nehru Place has seen rentals fall from Rs 270 per sq ft to Rs 250.
Mumbai, on the other hand, will see a correction in rentals. The total space take-up till Q3-08 is 5.3 million sq.ft; as compared to this, the total absorption till Q3 last year was approximately 9 million sq ft.
Nariman Point, the city's prime office district, has seen average rentals decline from Rs 475 per sq ft. in June to Rs 425 in September. Given that the city is the financial capital of the country, a large percentage of the office space taken up is by the financial and related sectors. Given the impact of the global meltdown on this sector, the actual scale of things to come would apparent in the coming quarters.
The space absorption in Bangalore has dropped quarter on quarter this year and clearly the economic slowdown in the global markets has left a mark on the Bangalore office sector.
With the STPI benefits coming to an end soon, the next wave of developments in Bangalore are expected to be in SEZ spaces - there are about 20 IT/ITES SEZs in operation or under planning - clearly that's what the big developers are betting on.
In Chennai, the absorption till date for 2008 is about 3 million sq.ft., substantially lower than what was leased in the same period last year. The Second Master Plan is expected to open up avenues for re-development.
In Hyderabad, rentals have stabilised given the lower demand along with developers postponing supply, rentals may not move upwards for the next few quarters.
The office space sector in Pune has shown some degree of slowdown in terms of take up and rental growth. Going forward, rentals are expected to either remain stable or perhaps undergo a correction in certain pockets.
Kolkata too, is experiencing stagnation. Though the city has emerged as a viable destination for corporates, the recent adverse political developments in Singur have impacted the city's image.
However, given the FDI in the country - a whopping 180 per cent jump $19.6 billion up to May shows that that long-term investors are unperturbed by the current situation and that India's long-term growth story does remain intact amongst the investor community.
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