Office rentals drop up to 37% in January-March

Office rentals declined up to 37 per cent in India during the first three months of the year due to sluggish demand, as business houses held back expansion plans to tide over the economic slowdown.

According to a study of eight Indian cities by global real estate consultant Cushman & Wakefield (C&W), supply in the cities outstripped absorption by 45 per cent in the January-March period of 2009.

Subsequently, drop in rentals in major business districts of the country ranged between three per cent and 37 per cent as compared to the previous three months.

For instance, at Lower Parel in Mumbai, office rentals fell by as much as 37 per cent in the first quarter of the current year, the study said.

Worli and Bandra Kurla Complex areas of the financial capital witnessed decrease of rentals by 29 per cent and 20 per cent respectively, it said.

"The first quarter of the year can be termed as the weakest so far in terms of commercial office take up across major cities in India as compared to a similar period for the last 2-3 years. Renegotiations and migration to more cost effective locations has been the norm for the cautiously advancing corporate sector," C&W Executive Director Kaustuv Roy said.

C&W said the National Capital Region (NCR) witnessed a fall in office rentals by up to 19 per cent during the first three months of 2009. Rentals at Connaught Place in the National Capital fell by 17 per cent largely due to occupants opting for more cost effective options.

The fall in office rentals was, however, the least at the Central Business District of Bangalore, which saw a decline of just three per cent.

All major markets moved towards an over supply situation mostly in response to plummeting demand from the key sectors such as BFSI (Banking, Financial Services and Insurance) and IT/ITeS, Roy said.

C&W pointed out that total fresh office space supply in Q1, 2009, across the eight cities was 11.5 million sq ft, which outstripped total absorption by over 45 per cent. Total absorption in the same period stood at 5.78 million sq ft and it was a decline of about 30 per cent over Q1, 2008.

While NCR and Mumbai witnessed fresh office space supply of 2.6 million sq ft and 2.47 million sq ft, respectively, absorptions in the two cities stood at 0.8 million sq ft and 0.9 sq ft respectively, the report said.

The consultant carried out their survey in Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, NCR and Pune.

Though supply levels in the market is expected to fall, C&W predicted rentals to remain under pressure in the coming few months as well.

"Going forward we are likely to see supply contraction. Acutely affected areas like IT/ITeS and certain corporate office destinations will see deferment of projects to bridge the gap between supply and demand.

"While rental values are expected to be under pressure in short to medium term, going forward lower rentals are likely to have a more positive impact on the absorption numbers," Roy said.