Office space absorption picks up, but still lower than last year
Jul 10, 2012
Source : The Economic Times


MUMBAI: Office space absorption across the country fell 12 per cent from a year ago in the quarter ended June, but rose 40 per cent to more than 7 million sq ft as compared to the previous quarter on the back of two major deals by Citigroup and Goldman Sachs. 
However, oversupply in the market continued to worry builders, as rentals came under pressure. 
According to a report by property consultant CBRE India, more than 9 million sq ft of office space was added in the second quarter of 2012, surpassing demand. Almost 96 per cent of the new supply in the quarter came up in Mumbai, NCR and Bangalore, while absorption in these markets accounted for 75 per cent of the total. 
Bulk of the supply added comprised developments that were delayed for the past several quarters, especially in Mumbai. The demand-supply gap continued to pressurize values across most micro-markets during the quarter. 
Values remain stable in cities like Chennai, Hyderabad and Pune, as a consequence of limited supply influx. Rentals dipped in select micromarkets of Mumbai's Bandra-Kurla Complex, Worli and Prabhadevi and Bangalore mainly due to sluggish demand levels and significant supply addition. 
"Demand for office space has not been a bright spot, but transactions have started to pick up as already fallen rates are relatively attractive. Rates may not drop any further from here, but for any upside in rentals, we may have to wait for 2 years," said Gaurav Gupta, director, Omkar Realtors & Developers. 
"We can expect supply dynamics to continue dictating rental movement in the coming quarters , with values in the CBDs being largely stable and those in suburbs slipping downwards. This would be more relevant for Mumbai and NCR," said CBRE South Asia chairman and MD Anshuman Magazine. 
"Requirement for larger spaces is slowing down and this will impact the rentals in the next few quarters." Nariman Point CBD witnessed limited transaction activity and absorption was recorded at a minimal 8,000 sq ft during the quarter. However,the market did not witness addition of any fresh supply leading to a marginal decline in vacancy to an estimated 6-7 per cent, with rental values being largely stable. 
In BKC absorption was around 0.9 million sq ft, whilst almost 1.94 million sq ft of Grade A office space was released. 
Abundant availability for leasing led to a sharp increase in vacancy levels to 18-19 % during the quarter compared to 4-5 per cent in the previous quarter.

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