It’s not just the residential real estate market in Mumbai that is going through a slump, the commercial office segment, too, is reeling under a slowdown. Total commercial office space area leased out and sold in the city during January-March 2011 has dropped more than two-thirds over the same quarter of fiscal 2010.
Interestingly, lease rentals rose more than 50% during the fourth quarter of the fiscal 2011, but value of sale transactions dropped 10%. Industry analysts attribute the slump to a scam-ridden market and also a wait-and-watch policy over the impact of the annual budget on the sector.
“Approximately 0.88 million sq ft of office space transactions (lease and sale) were recorded during the fourth quarter of fiscal 2011,considerably lower than the 2.81 million sq ft transacted in the fourth quarter of fiscal 2010,” according to a report by real estate research firm Knight Frank.
Of this 0.88 million sq ft, the total lease area transacted was around 0.69 million sq ft, much lower than 1.86 million sq feet in January-March 2010. Of the rest, around 0.18 million sq ft of sale transactions were witnessed in January-March 2011, as against 0.94 million sq feet in the same period previous fiscal.
The average lease rate increased more than 50% from Rs.91 per sq feet a month to Rs.138 during the quarter under review. However, the average sale rate witnessed a fall of 10% from Rs.14,000 per sq ft to Rs.12,696.
“Demand was muted as corporates stayed away from a market tainted by scams, which have been in media glare. Market sentiment continued to be subdued with market players expecting large developers to reduce prices, thereby boosting sales and easing liquidity pressure,” stated the report.
An official from Real Estate Intelligence Service (RIES) of Jones Lang LaSalle, India attributed the lower number of transactions to a wait-and-watch policy on the Union budget’s impact on the sector.
“After recording significant leasing in January-March 2010, Mumbai witnessed moderate transaction activity in January-March 2011 as the major office occupiers of India Inc awaited the impact of budget on their corporate real estate strategy for the next fiscal year,” the official said.
He said total transactions fell around 50% in January-March quarter against the preceding quarter of October-December 2010.
However, some other research firms said transactions in Mumbai’s office space segment have been better.
“Transactions across India in this segment have been good and I think they have been good in Mumbai as well,” said Anshuman Magazine, managing director- India, CBRE.
Amber Maheshwari, head of investment advisory, DTZ India, said, “Transactions have been good in this quarter. While, there is demand for IT space, the supply is a little more. Thus, prices have been depressed and there likely to continue that way for sometime.”
On the pan-India level, real estate consultancy firms reported a significant improvement in transactions in the office space.
A Jones Lang Lasalle official said total transactions in January-March 2011 increased 28% from seven million sq ft in Q12010 to nine million sq ft in Q1 2011.
A CB Richards Ellis report on office space transactions said economic growth has consistently fuelled demand for office space across all key cities.
It said the first quarter of 2011 has seen absorption of around six million sq ft, while the total absorption in 2010 was more than 32 million sq ft.
