Track2Realty: Office space absorption witnessed a 14% q-o-q decline during the 3rd quarter of 2012, according to the findings of CBRE’s latest report, India Office Market View Q3, 2012. Prime office space absorption across the 7 key cities reviewed decreased to about 6 million sq ft in the third quarter, compared to more than 7 million sq ft in the previous quarter.
The three leading hubs of NCR (National Capital Region), Mumbai and Bangalore, which accounted for almost 75% of the entire space getting transacted in the country in the previous quarter, had their market share reduced to about 62% in Q3 2012. This was on account of the three leading cities witnessing a decline in transaction activity, while other prominent office markets such as Hyderabad and Chennai observed an increase in the same.
Existing vacancy levels and lower demand resulted in a steep deceleration in supply addition across most leading cities in the country. About 5 million sq ft of office space was completed in the third quarter of 2012, compared to more than 9 million sq ft in the previous quarter, a decline of about 47% on a q-o-q basis.
The sharp decline can be attributed to existing vacancy pressures across most office markets, which resulted into delays in project completions. Bulk of the new supply was limited to NCR, Mumbai and Bangalore, contributing about 77% to the entire space completed during the present quarter. The Delhi-NCR region itself accounted for almost 36% of the entire supply that came on stream, with bulk of it concentrated in Gurgaon.
Commenting on the findings of the report, Anshuman Magazine, Chairman and Managing Director of CBRE, South Asia said, “While the 1st half of 2012 witnessed an increase in office space absorption, the figures from Q3, 2012 confirms the expected decline in demand for office space in the 2nd half of the year. This decline is mainly due to sluggishness in the local as well as global economy. Corporates are consolidating as well as improving efficiency of their current space. The slowdown in demand is expected to continue in the coming months. This coupled with increase in supply will keep rates under pressure.”
Rental values remained largely stable across most micro-markets as occupier expansion faced cost pressures and consolidation continued to be the key theme. It is anticipated that supply dynamics will continue to dictate rental movement in the coming quarters, with values being largely stable across most micro-markets.
Occupier demand remained low in the third quarter of 2012. Cost reduction was a primary concern for a majority of the corporate in view of the domestic and global economic scenario. The average floor size required by tenants reduced with a large number of small size deals being reported in the market.
Tenants continued to opt for more cost effective locations in suburbs, while leading IT/ITeS occupiers continued to expand. On account of all these factors, key markets such as Mumbai and New Delhi continue to observed transactions for relocation as well as consolidation.
The India Office Market View is a quarterly report which provides a summary of office rents across key cities in India. It includes average rental rates for the coming quarter as well as an outlook for the next quarter. The India Office Market View report also covers Grade A office space rentals across the cities of NCR, Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata.
