COMMERCIAL RENTALS DROP

COMMERCIAL RENTALS DROP

Economic Times, ET Realty, p1

With the liquidity crunch, not only have the prices of commercial spaces gone down, there has also been a major dip in demand. ET Realty explores
Rajarshi Bhattacharjee
Companies, which had deferred expansion plans in Delhi and the National Capital Region (NCR) owing to high property prices, can now think of going ahead. Rentals for office and commercial space are on a downhill move following decline in activity levels in the market. According to fourth quarter report (2008) of CB Richard Ellis, rental values have reduced by around 11 percent and capital values have depreciated by 13 percent in the Central Business District (CBD), as compared to quarter one of 2008. "As compared to the previous quarter, rentals of business spaces in Nehru Place have dropped by 20 percent. Markets of Jasola and Saket have also witnessed a decrease of 8 percent in rental values. Capital values, however witnessed a drop of approx 13 to 14 percent in both the markets," states CB Richard Ellis in its latest report. Peripheral markets of Gurgaon and Noida also witnessed a drop of approx 12 and 16 percent respectively in the last quarter, as compared to quarter three of 2008. The decisive factors determining fluctuation in price and demand of commercial spaces have been the closing down of expansion plans by companies and the liquidity crunch. Speaking over the recent dip in demand, Naveen Luthra, Vice-President and Business Head, MagicBricks.com informs, "Most companies from the US plan six months in advance. This decision for further rentals has been deferred from the benchmark December 2008 to March 2009. The spill-over effect of this will be felt within the next 4 to 6 months. By August-September 2009, the effect of slowdown is more likely to be evident." Infact, the CBD witnessed a reversal of trend in the year 2008 as compared to previous year when leasing activity was in a growth phase. No major transaction was concluded in the micro market this year apart from a few smaller space take ups. The upcoming Civic Centre project and redevelopment of railway land is expected to add new supply to CBD after a fairly long time. Another approx 70,000 sq ft is likely to come in the market when an existing building is expected to be renovated and available for leasing. Commercial spaces in Nehru Place maintained status-quo with no new supply and no leasing of Grade-A spaces. Large spaces in Saket, which were initially planned for single users have now been offered for lease. Bulk of leasing activity in Delhi has been concentrated in Jasola District Centre which has quality supply and comparatively lower rentals. Gurgaon has also been slow on leasing for both IT as well as commercial office spaces. Most of the projects have been delayed and few others are awaiting completion certificate. Gurgaon micro market currently has an estimated vacancy of around 11 percent. Noida continues to have abundant competitively priced IT supply but caters mostly to mid and lower level IT companies and has witnessed a vacancy of around 20 percent. "The Indian organised retail sector grew at 25 percent in 2007. Anticipating the growth of retail sector at above 35 percent in the coming years, developers had announced big retail projects. However, owing to economic slowdown, the growth of the retail sector has come down to 15 percent in 2008, resulting in developers deferring their projects for 12-24 months. Lack of funds leading to construction delays has resulted in slow absorption of retail space in malls and other commercial spaces," says VK Jindal, Chairman & Managing Director, SVP Group. Anshuman Magazine, Chairman & Managing Director, CB Richard Ellis, South Asia says, "Unlike the trends noticed in the past few years, fresh commitments and pre-leasing of underconstruction developments, have seen a drop. The next few months are likely to be a time of subdued demand in the short term. However the government's economic stimulus package and attempts by the US to revive the economy are expected to eventually improve activity levels in the market."