Prime
office space supply dropped 40 per cent in 2011, compared to 2010, according to
a report by CB Richard Ellis, a leading real estate consulting firm. An
accumulation of vacant stock, weak global economic cues, coupled with delays in
expansion plans of occupiers and transaction closures resulted in more than 40
per cent decline in overall supply of new prime office space in top cities of
India during 2011. The CBRE forecast for the next few quarters remains bleak,
indicating a negative impact on the rental value.
Approximately,
30 million sq ft of prime office space entered the market in 2011, compared to
55 million sq ft in the previous year.
More
than 80 per cent of the new supply addition was largely concentrated in NCR,
Chennai, Hyderabad and Pune, in the fourth quarter of the calendar 2011. Some
of the leading office hubs witnessed negligible supply in Grade A office
segment, as existing vacancy pressures forced developers to delay project
completion to 2012. While NCR and Bangalore led in supply addition, most cities
witnessed a drop in the number of completed projects. Delays on account of
rising vacancy levels and appreciating input costs had an impact on
construction timelines majorly in the last two quarters of calendar year 2011.
Connaught
Place in Delhi did not witness any substantial addition in supply. Gurgaon on
the other hand continued to be the hub of office transaction activity in NCR,
with an addition of almost 1.2 million sq ft of Grade A supply, largely in
commercial and IT/ITeS segments. Nariman Point in Mumbai saw no addition of
fresh supply, while absorption of approximately 10,000 sq ft was recorded in
the secondary space.
Anshuman
Magazine, chairman & managing director, CBRE (South Asia), said, “The
continuing volatility in the global and Indian financial markets, coupled with
rising inflation and interest rates, has led companies and developers to be
cautious in their expansion plans”.
He
added that the tight liquidity situation, high interest costs and uncertain
demand were deterrents for developers.
“It
would be safe to say that this sentiment would remain, till the global and the
Indian economic situation stabilizes,” Magazine said.
Absorption
of office space dipped nearly 12 per cent across leading cities of the country
in 2011 to 28 million sq ft, from 32 million sq ft in 2010. In the
October-December 2011 quarter, there was a total absorption of almost 6.5
million sq ft of office space across top cities such as Bangalore, NCR, Chennai
and Hyderabad. These cities also accounted for almost 80 per cent of the entire
space getting absorbed in the country.
According
to CBRE, the outlook for office market segment remains weak for the next few
quarters on the back of a slowing economy. The IT/ITeS segment is expected to
witness supply pressures, with demand not being able to match new supply
addition, which might have an adverse impact on rental values in this segment,
the report said.
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