Commercial property supply likely to shrink

MUMBAI: Mumbai and Delhi, India���s leading commercial markets, are unlikely to see any major increase in supply of commercial real estate in the next couple of years, as developers have either aborted projects or stalled construction in some, due to severe cash crunch.

Out of 212 million sq ft grade-A office space planned in six cities ��� the Delhi NCR region, Mumbai, Bangalore, Kolkata, Pune and Chennai ��� only 88 million sq ft is likely to be completed by 2010, said industry officials. The demand-supply scenario in these cities would remain under pressure, they added.

Average absorption across the six cities is also set to reach its lowest point, as it will fall by nearly 60% during the next five to six quarters over the third-quarter levels of 2008.

International property consultant DTZ in a recent report on office space supply said: ���Developers will be forced to cut back new construction plans significantly given the low demand for office space due to overall slowdown of the economy.���

Projects, that were announced and which are still in planning stage, will most certainly be shelved, added the report.
���Many under construction projects will undergo financial stress or will be stranded due to lack of finances for completion, until improvement in market conditions,��� said Anshul Jain, CEO (India) at DTZ International.

Mumbai, one of the most expensive commercial property markets in the world, is expected to add another 34 million sq ft over the next two years. However, with the current slowdown and the impact witnessed on the absorption front, it is highly unlikely that all supply would be realised before 2010. Industry analysts believe only 16 million would add into the Mumbai commercial market by end-2010.

Lower Parel-Worli area in Mumbai would soon see around five textile mills being converted into commercial properties, converting the suburbs as hubs of finance, retail and IT.

Other proposed projects of DLF, Bombay Dyeing and Century Mills are in early stages of construction. ���We have completed the construction of the 1.5-million sq ft and lease agreements have signed with many Corporates. We will be completing another one million sq ft in an year,��� said Gagan Benga, spokesperson for the Indiabulls group.

In the Delhi NCR market, all the proposed and under construction projects put together, a total of 67 million sq ft new supply of office space is scheduled to hit the market by end-2010. But, industry analyst feels, only 27.3 million fresh supply is likely to come by 2010.

���I feel, the demand-supply scenario in the retail segment will be under pressure since many malls which were expected to come, have been converted into commercial or residential properties. The demand-supply situation may not be as bad as other commercial properties are concerned,��� said Anuj Puri, country head, Jones Lang LaSalle Meghraj.