Office space demand down 29% in 2009

Office space demand down 29% in 2009
The Economic Times, December 24, 2009, Page 5

Conservative Leasing By IT/ITeS Led To Dip, Recovery Seen In H2 Of ’10: Cushman & Wakefield

Ravi Teja Sharma NEW DELHI

COMMERCIAL real estate is hoping for a bounce back in 2010. For 2009 though, the year is ending with a 29% decline in space absorption compared to 2008, according to the annual year-end report by real estate consultancy Cushman & Wakefield. The total absorption of commercial space across major Indian cities stood at 26.3 million sq ft in 2009, compared to 37 million sq ft in 2008. This dip was primarily because of a conservative leasing approach by the IT/ITeS sector that accounts for majority of commercial office space take up (60%) in the country. But the outlook for the coming year is positive. “With the gradual recovery of the economy, the demand for office space is likely to increase by the second half of 2010,” says Sumit Rakshit, executive director, occupier services at Cushman & Wakefield.

Corporates have been cautious about expansion in 2009, both because of the recession and also falling office space rentals. Across India, there has been about 4.6 million sq ft of pre-commitments for space due to be absorbed over the next two years. Of this, Bangalore alone accounts for 2.7 million sq ft. This indicates the revival of the IT/ITeS segment, which is the mainstay in Bangalore. IT companies are starting to get new contracts which is pushing them to commit to new real estate costs.

Most micro-markets across the country witnessed 15-25% decline in rentals in 2009 over last year. The last quarter though has seen rentals stabilising, except in few locations such as Mumbai’s Lower Parel that saw the highest fall in rentals by 40% in the past year. Even Delhi saw a rental decline between 3% and 26% during the year. Because of an acute oversupply situation, Gurgaon is expected to see a further fall in rentals. Though 2009 saw a drop in expected supply, major cities recorded 51.8 million sq ft of new office space supply. With corporates starting to relook at leasing large spaces, this new supply is expected to be absorbed in the coming year. “Clients are starting to talk positive,” he adds.

Cushman & Wakefield sees a revival of rentals across all markets. “Corporates too are realising this. This is the right time to buy or lease property as rentals and capital values are still at their lowest,” he explains. On the developer’s side, the positive news is that stalled commercial office projects are being restarted.

“2009 was a tenants market. The coming year beyond, things will start to turn.”