Commercial Real Estate Faces the Problem of Supply Overhang

India’s realty sector is likely to face the problem of plenty with office rental space set to outstrip demand resulting in a further drop in rentals, according to a report released on Tuesday. “With the forecast growth of net completions expected to outpace that of net absorption, a significant supply overhang is expected to remain over the next one year,” Confederation of Indian Industry (CII) and global real estate services firm Jones Lang Lasalle Meghraj said in a joint report. “This will lead vacancy level across India, which was 17.2 percent in 2009 to rise to 20 percent by 2010 end,” it added.

It said the commercial lease and rental space in India would witness a low occupancy rate till 2011. The report, however, added that most Indian cities have witnessed an increase in the volume of lease transactions in the first quarter of 2010 with Delhi, including the national capital region, Mumbai and Hyderabad having recorded more than a million square feet of leases each. In 2009, occupiers showed a strong preference towards operational vacant stock rather than projects under construction, a departure from 2007-08, the report pointed out. On the future trend, report said the most micro markets were expected to reach their rental lows within the next 2 3 quarters, if not reached as yet. This indicates that the window of opportunity for occupiers, where balance of power favours them, continues to shrink with every passing quarter.

“With India’s economic recovery well under way, its commercial real estate market is beginning to stabilise. Apart from charting the today’s lucrative micro-markets in terms of commercial real estate, this report also affirms that the commercial property landscape will remain favourable for tenants in 2010, and that landlords will have greater influence towards the beginning of 2011,” said Abhishek Kiran Gupta, Head Research and REIS, Jones Lang LaSalle Meghraj. The report titled “The Seven Stars of India India’s best performing micro markets for occupiers” highlights the trend and forecast on realty rental market in seven cities of India Delhi, Mumbai, Pune, Chennai, Bangalore, Hyderabad and Kolkata.