Large office spaces see few takers as slowdown bites
Delhi saw drop of 91% sequentially and 66% over March quarter with trend in Mumbai slightly better
Nov 01, 2013
Source : The Financial Express


MUMBAI: The quantum of large commercial space leased out dipped sharply last quarter. While Delhi saw a drop of 91% sequentially and 66% over the March quarter, the trend in Mumbai was only slightly better — the fall was 50% sequentially and 62% over the January-March period. Indeed, there seem to be few takers for office space of more than 1 lakh square feet — just 1.2 lakh sq ft was rented in Delhi in the September quarter while in Mumbai the area was 2.5 lakh sq ft.

Rohit Kumar, head of India research, DTZ, which tracks the data, points out that while such large transactions do take between six and nine months to get done, it’s a fact that the sentiment is subdued in a slowing economy. India’s gross domestic product of 5% for FY14 was at the lowest level in a decade. With elections due in several states and general elections due in 2014, corporate decision-making has slowed.

Activity in the commercial real estate is definitely slowing. In the July-September period, absorption of office space declined 20% quarter-on-quarter in seven cities to 68 lakh sq ft, says DTZ in its latest report. The decline would be closer to 15% over the same period last year.

Anshuman Magazine, CMD, CBRE South Asia, confirmed that the substantial drop in India’s GDP growth and an uncertain environment have hurt corporate growth and expansion, resulting in a drop in office absorption across key metros.

Some of the key transactions in 2013 include Axis Bank leasing 2 lakh sq ft in Gigaspace Building 2, Mindspace, the eastern Mumbai suburb of Airoli for nearly R10 crore annual rent, say sources. Johnson & Johnson’s take-up of 1 lakh sq ft and Walt Disney’s 1.25 lakh sq ft in Andheri are believed to be for R10 crore and R23 crore annual rent, respectively. In Delhi NCR, Fiserv is understood to have picked up 2 lakh sq ft space in DLF IT Park, Noida, for about R10 crore, and Convergys leased almost 2.3 lakh sq ft in Gurgaon for close to R20 crore, say sources.

are low as occupiers opt for cheaper office locations in the suburbs, preferring to lease than to buy. Smaller spaces are being rented as companies cut back on costs.

In the first nine months of 2013, Mumbai, for example, saw the share of lease transactions for less than 10,000 sq ft rise to 39% from 36% last year. The share fell the most in the 10,000 sq ft and 50,000 sq ft bucket to 41% from 50% last year and remained stagnant at 11% for transactions above 1 lakh sq ft, data from Jones Lang LaSalle (JLL) India show.

“Mumbai’s average size of deal transaction is 30,000 sq ft,” said Ashutosh Limaye, head of research, JLL India.

In Delhi NCR, transactions of less than 25,000 sq ft accounted for 34% of total take-up during July-September, while transactions of 1 lakh sq ft saw a drop in their share of the total take-up, says the DTZ report.

Rentals, however, have remained stable in most parts of the country during the quarter, with the exception of Mumbai, where pressure was seen in rentals in Nariman Point and Bandra-Kurla Complex (BKC) with most corporates preferring more cost-efficient peripheral locations, according to the latest CBRE South Asia report. Rents were down around 2% and 10% on on a quarterly and annual basis, respectively to Rs 250 per sq ft per month in Nariman Point, while in BKC, rents have fallen 1.8% and 8% on a quarterly annual basis, respectively, to Rs 275 per sq ft per month. In the Gurgaon and Noida areas of NCR, the rentals remained unchanged at Rs 91 per sq ft per month and Rs 40 per sq ft per month on a quarterly and annual basis, respectively. Corporates are consolidating their operations within a city to peripheral, suburban locations to buildings that have modern amenities and where they can acquire more space later.

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