Rentals in metros fall further in Jan-Mar: Richard Ellis

Rentals in metros fall further in Jan-Mar: Richard Ellis
The Financial Express, April 21, 2009, Corporates & Markets, P VIII

fe Bureau, New Delhi

Rentals and capital value of office space witnessed a further drop during the January-March quarter in cities like Delhi NCR, Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata, according to the latest C B Richard Ellis report.

The financial and IT sectors, which have been hit hard by the slump, are postponing their capital expenses and giving up on excess space.

The adverse supply-demand crunch, high interest rates and low mismatch and non-availability of confidence in the economic outlook financing options, has impacted the realty sector hard in the form of substantial slowdown in construction in the last few months of 2008. Most new projects remain on paper. While not ruling out the scope of further correction in the coming quarters, the report said that the prospects of any sharp decline is unlikely. Transactions are expected to pick up in the major cities in the medium to long-term period.

In the Delhi NCR region, the effect is no different from the rest of India. The central business district (CBD) of Connaught Place in Delhi has witnessed enhanced levels of second hand space as a result of tenants relocating to more cost-effective destinations. The civic centre, an office complex of approximately 0.6 million sq ft, which was expected to be completed in this quarter, has been delayed. With vacancy levels ranging between 8%-9%, rentals are at more realistic levels as compared to the high of early 2008.

The secondary business district (SBD) of Nehru Place lacked any major activity in this quarter as well. The supply (approximately 20,000 – 40,000 sq ft) in the three projects which include International Trade Tower, Eros Corporate Tower and IFCI is increasing with existing tenants downsizing their operations or relocating.

With the IT sector facing a slump, the peripheral market of Gurgaon continues to be slow. This quarter witnessed an increase in the supply (around 0.25 million sq ft) of furnished space and availability of sub-lease options In Noida the current vacancy rate is around 25% to 30%.

Mumbai has also seen a southward trend in rentals across all micro markets. The CBD of Nariman Point has witnessed a significant correction in rentals over the last 6–9 months with additional secondary stock added to the micro market, taking the vacancy rate to around 15%.

Despite the general lack of demand, extended business district - Lower Parel and Worli has witnessed a revival of construction activity in many of the projects that were earlier stalled.

In central business district of MG Road, Richmond Road and Residency Road of Bangalore, most of the transactions took place in the small and medium segment. Whilst there was no addition of fresh grade A stock, available sub-lease and second generation space has been estimated at approximately 0.36 million sqft, with absorption level at approximately 0.10 million sq ft.