DELHI: Demand for commercial real estate is likely to remain subdued in the medium term as corporates continue to be in a consolidation mode while excess supply may put pressure on capital and rental values, property consultant CBRE said today.
The economic downturn has subdued office and retail markets that has affected sales and put pressure on capital values as well across major cities, CBRE South Asia Chairman and Managing Director Anshuman Magazine said in a statement.
In residential segment, he said the buyer sentiments have remained largely cautious due to relatively high price points and sticky borrowing costs, amid an uncertain economic climate.
He said that investment has slowed considerably across segments resulting in weaker construction activity in most cities.
Giving the outlook, Magazine said: "Against the current economic and political backdrop, demand for commercial real estate is likely to remain subdued in the medium term".
"Corporates are expected to continue their focus on optimal space utilisation and cost cutting measures, and transaction activity is expected to be mainly restricted to take up of small and medium sized space," he said.
Magazine was also of the view that supply backlogs could exert pressure on rental and capital values as well.
He, however, said that recent indications of revival in the global and domestic economy should contribute to better performance and improved economic prospects towards H2 2014.
In the office space segment, CBRE said the demand declined during the third quarter of 2013, because corporates focused on consolidating and downsizing their space portfolios, and/or relocating to peripheral markets.
Office space absorption in the top seven cities fell by about 14 per cent in July-September of 2013 at over 6 million sq ft compared to over 7 million sq ft in previous quarter.
Absorption of prime office space in full 2012 calendar year of top seven cities stood at over 25 million sq ft, while total absorption is over 19 million sq ft in the first three quarters of 2013, according to CBRE.
While subdued demand and high vacancy levels have led to rental stability in most markets in recent months, CBRE said weak absorption numbers has resulted in a decline in office space supply over previous quarters, weighing in on future investment plan.
To boost commercial real estate segment, Magazine pitched for reforms in areas like slow project approval processes, supply bottlenecks, opening up key sectors like retail to FDI, and infrastructure creation through PPP projects.
"Looking beyond the results of the upcoming General Elections in April 2014, the economy will not only need a clearly defined vision and competent economic management, but will also require proactive, industry-centric decision making along with sweeping reforms in a number of areas to drive faster growth," he said.