Office rentals stable: Report

Property trends

Office rentals stable: Report

The year 2009 started on a discouraging note for the residential, retail and office segments. Office demand saw a substantial drop which triggered a decline in rentals and postponement and cancellation of projects. Residential sales declined significantly as well. To counter these effects, the government announced a number of stimulus packages to help the economy recover from the global downturn, according to the India Office Market View Report released by CB Ellis, for the fourth quarter of the year 2009.

This coupled with other factors including confidence levels improving amongst the consumers has resulted in some signs of improvement towards the latter part of the year.

8 pc growth by 2010-11

The report points out that the Finance Ministry predicts that the Indian economy will expand by eight per cent in 2010-11, after growing between seven and 7.5 per cent in the current fiscal year. Improving economic sentiment, rising confidence of the corporate sector and lower prices triggered a path towards revival in the commercial office market during the past few months.

The market report also adds that over the past quarter, the office real estate market has shown an uptrend in terms of level of enquiries, which more positively has also resulted in enhanced deal velocity. Whilst the IT/ITeS sector has been slower to get onto the recovery path, corporate office space take-up has been quite encouraging; FIs, FMCG and Telecom sectors have all contributed to the same.
As supply has overtaken demand facilitating increased competition, better quality developments are attracting demand. This is encouraging for the real estate sector as a whole with commitment to quality finally getting its due rewards.

All the seven cities covered as part of the review witnessed improved levels of activity in the office sector. The rentals in the CBD of NCR, Bangalore, Hyderabad and Kolkata remained constant; whereas in Mumbai and Chennai the rentals dropped by three per cent and in Pune by five per cent owing to limited leasing activity. Recessionary times also made most developers shift their focus towards affordable housing, which has received a positive response from the investor and end user market alike.

Market summary of city

 In 2010, the demand for office space will improve although rentals are expected to remain flat. File photoApart from a few mid and small size transactions, no significant activity was observed in the Central Business District (CBD) of MG Road, Richmond Road and Residency Road in the fourth quarter.

Whilst no significant Grade A supply came online, total space absorption has been estimated at approximately 0.146 million sq ft. Rentals seem to have stabilised and developers continue to be flexible with regards to commercial and non commercial terms.

Activity in the non CBD micro market consisting of areas such as Indira Nagar, Koramangala, Old Madras Road and C V Raman Nagar witnessed minimal improvement over the third quarter.

Transaction velocity remained low and isolated. There was no addition of fresh supply; total space absorption has been estimated at 0.02 million sq.ft. and rentals remained stable.

The South Bangalore micro market of Bannerghatta Raod, JP Nagar, Jayanagar and Mysore Road seems to be emerging as a viable destination for companies facing the need to expand but constrained by limited budgets. As observed in the third quarter, space acquisition was largely concentrated in Grade B buildings.

Supply released in this micro market has been negligible; total space absorption has been estimated at approximately 0.16 million sq.ft.

The Peripheral Business District (PBD) of Outer Ring Road (ORR), Whitefield, Electronic City and North Bangalore faced a supply glut, the situation being exacerbated by the deferring or even shelving of long term expansion plans by most companies. The Outer Ring Road (ORR) stretch between KR Puram Junction and Sarjapur Road witnessed absorption of approximately 0.27 million sq.ft. 

Rentals in this micro market continue to remain under downward pressure. Office leasing activity picked up marginally in the Whitefield micro market; total absorption was recorded at approximately 0.27 million sq.ft.

Electronic City remained largely inactive and rental values remained stable.
Apart from the closure of a few isolated transactions, the North Bangalore micro market also witnessed commitment for approximately 0.3 million sq.ft. from an existing occupant.

Signs of recovery

Commenting on the findings of the report, Anshuman Magazine, Chairman & MD, CB Richard Ellis, South Asia, said, “Since the third quarter of 2009, the office segment has seen some movement with corporates slowly returning to the market and office space take-up improving. During 2010 demand is expected to improve although the rentals are expected to remain flat in the medium term due to the forecasted large supply of office space.”

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