Impact of economic slow down
The impact of economic slow down is now visible on the demand for the commercial office space in the country. According to a report on office space by a global real estate consultant Cushman and Wakefield, both Indian and multinational companies are deferring their expansion plans. This has also affected the rentals of the office space in the country.
The rentals of IT office space have declined between 3% and 13%. In Noida particularly, the decline in the rentals of the IT office space is maximum at 13% during the quarter ending June 2008. At present, the space according to the report is available at Rs 39 per sq. ft per month.
In Gurgaon, the rentals of IT offices have declined by around 3% during the period to Rs 76 per sq. ft per month. However, the rentals for other commercial space in Gurgaon increased by 4% during the period to Rs 118 per sq. ft per month. Kaustuv Roy, Director, Tenant Strategies & Solutions, India, Cushman & Wakefield says, "There has been a slowdown in the actual transactions witnessed in second quarter of 2008 owing to a number of factors, primary amongst which is a general slowdown of the economy. Most corporations, both Indian and Multi-Nationals have been adopting a wait-and-watch policy throughout most of the second quarter, leading to a slower uptake of real estate. However, the economic fundamentals of India are strong and we should expect demand pick up by the 4th quarter of the year."
The slowdown in the office space uptake will affect the demand for residential accommodation. Because of rise in the interest rates in the last one year, the demand for residential accommodation is already under pressure. With the slow down in the economy, demand is likely to further dwindle. This will put pressure on the real estate prices in the country, which has already shown some sign of decline in the last three months.
According to the latest Cushman & Wakefield report, demand for second quarter (April-June) 2008 was at 9.74 million sq.ft. The main demand came from new commitments leading to absorption of 6.36 million sq.ft. Only 3.38 million sq.ft
space was absorbed against pre-commitments in 2Q 2008. Supply for second quarter 2008 was recorded at 18.07 million. The IT/ITeS sector, which has been one of the largest consumers of commercial real estate, have deferred their expansion plans, leading to slowdown in the uptake in the second quarter of 2008.
In certain micro markets, like Noida in NCR, Rajiv Gandhi Salai in Chennai and Mumbai recorded excess supply for this quarter thus increasing the overall vacancy rates.
The second quarter of 2008 witnessed a total supply of 4.3 million sq. ft. in NCR, of which 60% was IT/ITeS specific. The supply was spread across micro-markets with majority of it in Noida (54%) followed by Gurgaon (38%) and Delhi (8%). Demand in second quarter 2008 was recorded at 3.3 million sq.ft. Absorption accounted for 64% of the demand while the remaining constituted of pre-commitments across NCR. Noida witnessed majority (55%) of the pre-commitments during the quarter on prime properties. The average vacancy rate across NCR was 7%.
The rentals of IT/SEZ segment in Gurgaon and Noida, the report said, witnessed correction with values declining by 3% and13% over the quarter respectively. The anticipated supply and deferred expansion plans of the companies resulted in the decline of rents. The office market is expected to remain firm with rental values rising except for the IT/SEZ segment of Gurgaon and Noida. In Mumbai also, there is a situation of oversupply, leading to stabilization of rentals. But, if the condition persists, rentals will come under pressure. Sixteen new office buildings with total built up area of 4.09 million sq.ft. were ready for occupancy. But, only one million sq ft area has been occupied during the period, said the report. Approximately another 4 million sq.ft. of commercial office supply is expected to enter Mumbai in third quarter of 2008.
As a result of which, the report said, rental and capital values are expected to stabilize in next quarter and are likely to be under pressure in last quarter of 2008. Pune was however an exception to the stable rentals where all micro markets witnessed a rise in rental values in the range of 2-7% over the last quarter. This was largely due to lack of supply of Grade A commercial in CBD. The second quarter witnessed infusion of approximately 3.11 million sq.ft. new office supply in Bangalore. The impact of the US economic slow down has been most felt in Bangalore with most firms seem to have adopted a conservative approach in leasing office space. Nearly 1.97 million sq.ft. of absorption was recorded in the second quarter of 2008.
The rentals of IT office space have declined between 3% and 13%. In Noida particularly, the decline in the rentals of the IT office space is maximum at 13% during the quarter ending June 2008. At present, the space according to the report is available at Rs 39 per sq. ft per month.
In Gurgaon, the rentals of IT offices have declined by around 3% during the period to Rs 76 per sq. ft per month. However, the rentals for other commercial space in Gurgaon increased by 4% during the period to Rs 118 per sq. ft per month. Kaustuv Roy, Director, Tenant Strategies & Solutions, India, Cushman & Wakefield says, "There has been a slowdown in the actual transactions witnessed in second quarter of 2008 owing to a number of factors, primary amongst which is a general slowdown of the economy. Most corporations, both Indian and Multi-Nationals have been adopting a wait-and-watch policy throughout most of the second quarter, leading to a slower uptake of real estate. However, the economic fundamentals of India are strong and we should expect demand pick up by the 4th quarter of the year."
The slowdown in the office space uptake will affect the demand for residential accommodation. Because of rise in the interest rates in the last one year, the demand for residential accommodation is already under pressure. With the slow down in the economy, demand is likely to further dwindle. This will put pressure on the real estate prices in the country, which has already shown some sign of decline in the last three months.
According to the latest Cushman & Wakefield report, demand for second quarter (April-June) 2008 was at 9.74 million sq.ft. The main demand came from new commitments leading to absorption of 6.36 million sq.ft. Only 3.38 million sq.ft
space was absorbed against pre-commitments in 2Q 2008. Supply for second quarter 2008 was recorded at 18.07 million. The IT/ITeS sector, which has been one of the largest consumers of commercial real estate, have deferred their expansion plans, leading to slowdown in the uptake in the second quarter of 2008.
In certain micro markets, like Noida in NCR, Rajiv Gandhi Salai in Chennai and Mumbai recorded excess supply for this quarter thus increasing the overall vacancy rates.
The second quarter of 2008 witnessed a total supply of 4.3 million sq. ft. in NCR, of which 60% was IT/ITeS specific. The supply was spread across micro-markets with majority of it in Noida (54%) followed by Gurgaon (38%) and Delhi (8%). Demand in second quarter 2008 was recorded at 3.3 million sq.ft. Absorption accounted for 64% of the demand while the remaining constituted of pre-commitments across NCR. Noida witnessed majority (55%) of the pre-commitments during the quarter on prime properties. The average vacancy rate across NCR was 7%.
The rentals of IT/SEZ segment in Gurgaon and Noida, the report said, witnessed correction with values declining by 3% and13% over the quarter respectively. The anticipated supply and deferred expansion plans of the companies resulted in the decline of rents. The office market is expected to remain firm with rental values rising except for the IT/SEZ segment of Gurgaon and Noida. In Mumbai also, there is a situation of oversupply, leading to stabilization of rentals. But, if the condition persists, rentals will come under pressure. Sixteen new office buildings with total built up area of 4.09 million sq.ft. were ready for occupancy. But, only one million sq ft area has been occupied during the period, said the report. Approximately another 4 million sq.ft. of commercial office supply is expected to enter Mumbai in third quarter of 2008.
As a result of which, the report said, rental and capital values are expected to stabilize in next quarter and are likely to be under pressure in last quarter of 2008. Pune was however an exception to the stable rentals where all micro markets witnessed a rise in rental values in the range of 2-7% over the last quarter. This was largely due to lack of supply of Grade A commercial in CBD. The second quarter witnessed infusion of approximately 3.11 million sq.ft. new office supply in Bangalore. The impact of the US economic slow down has been most felt in Bangalore with most firms seem to have adopted a conservative approach in leasing office space. Nearly 1.97 million sq.ft. of absorption was recorded in the second quarter of 2008.