Track2Realty: Subdued economic growth on the domestic front and persistent concerns about the economic outlook in USA and Euro Zone moderated business confidence among office space occupiers in 2012. As a result, the major seven cities in India witnessed restrained office space take-up in 2012.
Total office space take-up across seven major cities was recorded at 27 million sq ft, a drop of 23% as compared to 2011. Additionally, it was also the lowest take-up recorded since 2010.
Amongst major office space hubs, Delhi NCR and Mumbai witnessed the steepest moderation in take-up, which dropped by 30% and 35% respectively.
Even as transaction activity was broad based, limited take-up from IT sector resulted in low take-up levels in these cities. Take-up levels in Bengaluru and Chennai also shrunk, but at reduced pace of 9% and 13% respectively. This can be attributed to a few large size transactions recorded in these cities during the second and third quarters of 2012.
Additionally, even as Pune witnessed buoyant enquiry levels, guarded expansion plans by IT/ITeS and BFSI back office operations in second half of the year resulted in restricted take-up levels as compared to previous year.
Significant slowdown in new supply
Restrained take-up and high availability levels also reflected on the construction schedule and development pipeline of office supply in 2012. In order to avoid supply pressure on rental values, several developers were found to go slow on their under construction properties as well as new project launches. Consequently, overall fresh office supply across major markets was recorded at 24 million sq ft, a drop of 32% when compared to 2011.
With an exception of Bengaluru, all other cities witnessed a drop in office supply in 2012 as compared to 2011 (Figure 4). Pune witnessed the highest drop in new supply (-71%) followed by Kolkata (-64%) and Delhi NCR (-42%). Majority of fresh supply (73%) was cantered across major cities of Delhi NCR, Mumbai and Bengaluru.
With overall take-up exceeding fresh supply, southern cities of Bengaluru, Hyderabad and Chennai recorded significant reduction in availability levels. However, availability levels in Delhi NCR and Mumbai moved upwards due to fresh supply outstripping take-up.
Rentals largely remained stable
Even as transaction activity reduced, the slowdown in new supply moderated availability levels across most markets. This was further augmented by significant pre-commitments in new supply across several locations. As a result, developers were able to refrain from any major drop in rentals.
Outlook
Lower than expected economic growth in domestic front will keep transaction levels in check over the short term. However, the ongoing policy reforms by central government are expected to improve business confidence amongst occupiers and result in an uptrend in take-up levels over the next 6 to 9 months.
Additionally, high availability levels and large upcoming supply will keep rental values across most markets under downward pressure. As a result, rentals values are expected to remain largely stable.
