Office space supply falls sharply in major cities

Weak economic sentiments, constraints in raising capital and moderation in demand have significantly impacted the commercial real estate sector with a limited number of office projects having made their way into the market in the first quarter of the calendar year 2012, says a report by real estate consultancy Cushman & Wakefield (C&W). The supply of office spaces in eight metro cities has fallen by 24 per cent to 6.8 million sq ft in the first four months of 2012 as compared to 8.9 million sq ft for the previous quarter.

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“Traditionally, the first quarter tends to be slow. Bulk of the activity in offices market takes place in the October to December quarter. Besides, many companies who were committed to expand their businesses, have deferred their plans for the time being leading to slow demand,” says Anurag Mathur, Managing Director, C&W India.

The report noted that absorption rates in the office market across these metros stood at 7 million sq ft, a decline of 32 per cent over last quarter and 6 per cent over the same period last year. Absorption rate is a measure to determine how fast the properties in a particular market are selling. “The developers are cautiously looking at the market and not adding supply to the existing vacancies. But supply could exceed demand in cities like Mumbai, NCR and Chennai as these cities have a strong pipeline of under-construction inventory,” says Mathur.

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Mumbai, however, saw the highest growth in absorption at 35 per cent due to increase in space take-up by the BFSI (banking, financial services and insurance) sector. Mumbai also saw a number of large sized deals (ranging from 1-3 lakh sq.ft.) such as Crescenzo (in Bandra-Kurla Complex) by Sahara, Synergy Mindspace (Airoli) by Cognizant and Marathon Futurex (in Lower Parel) by L’Oreal.

The study also points out that rentals, which have largely been stable in most markets except Kolkata and Chennai, are expected to remain steady during the second half of the year as developers may control construction activity to keep supply in line with the demand. “But a rise of 140 per cent in pre-commitments compared to the previous quarter exhibit the demand for space in this city is expected to gain momentum in the coming quarters,” says the report.

C&W covered Delhi NCR, Mumbai, Pune, Ahmedabad, Bengaluru, Chennai, Hyderabad and Kolkata for the report.

[“source -pcworld”]