An oversupply of commercial office space in Mumbai and other metros could lead to a huge price correction in the country’s realty market.
According to the annual report of Cushman & Wakefield (C&W) and Global Real Estate Institute (GRI), the highest supply of A Grade office space is approximately 78 million sqft, against the demand of 33.9 million sqft. In Mumbai, supply is expected to outstrip demand by 125% by the end of five years, leading to an expected downward price trend going forward.
Arvind Nandan, Executive Director, consultancy services, Cushman & Wakefield, India, said, “Companies have been cautious in their expansion plans ever since the 2008-09 economic downturn and since then, the pace at which office space demand is generated has seen a significant slowdown. In the projected scenario, corporate clients will look for better value proposition in terms of rents, maintenance costs and parking, while expanding and consolidating operations.”
Real estate experts attribute the meteoric rise in the construction of commercial complexes to the information sector boom prior to 2006.
“Back then, a majority of foreign companies were expanding their base in India and Mumbai was the ideal location for a branch office. Now, due to the financial slowdown, these office spaces are lying vacant. There are also many projects underway that will create an oversupply of commercial space in the city,” added Nandan.
He said there has been some resistance to growth because of prevailing economic uncertainty due to factors like the Eurozone crisis in Europe and the downgrading of America’s credit rating. “Going forward, the momentum in the commercial market is likely to continue at a slower pace,” said Nandan.
