Office space leasing falls by 5%, supply down 34% in January-March

NEW DELHI: Office space absorption fell by 5 per cent, while supply declined by 34 per cent during January- March period as corporates continue to remain cautious about expansion, according to global property consultant CBRE.

"Office space demand slowed down in the first quarter of 2014, with around 6.3 million sq ft of office space getting absorbed across the leading cities of the country as against 6.6 million sq ft in Q1 2013 -- a drop of approximately 5 per cent," CBRE said in a report.

About 6.6 million sq ft of office space was completed in the first quarter of 2014 calendar year compared to about 10 million sq ft in Q1 2013.

"Overall, the commercial real estate market in India saw sluggish transaction activity and a low level of new completions during Q1 2014.

"Leading cities continued to see heightened caution from corporate occupiers, resulting in subdued leasing activity during the first three months of the year. The majority of these deal closures took place for small to medium-sized office spaces," CBRE said.

IT/ITeS, financial and services segments continued to drive demand for office space, according to CBRE's latest report India Office MarketView Q1 2014.

The transaction activity was dominated by the national capital region, Bangalore and Chennai -- representing about 70 per cent of the total space transacted during the quarter.

"New office space supply in the leading cities was also affected due to existing vacancy levels and lower demand," CBRE noted.

CBRE South Asia Chairman and Managing Director Anshuman Magazine said: "Occupiers continue to remain focused on optimal space utilization and cost saving strategies."

Going forward, he said, the demand is likely to be concentrated mostly in the peripheral micro-markets of leading cities, owing to abundant availability of cost effective quality space options.
"The upcoming general elections and the formation of a new government are expected to affect the corporate market as well. In the short to medium term, we can expect firms in the IT/ITeS, banking/financial services and pharmaceuticals to remain key contributors to overall office space absorption across major cities," Magazine said.

Rental trends exhibited mixed sentiments across micro-markets.
"Rental values in the Central Business Districts of Delhi, Bangalore, Chennai and Pune appreciated in the range of 2-5 per cent quarter-on-quarter (q-o-q) due to increasing occupier interest in leading Grade A properties," CBRE said.

In Mumbai, feeble demand levels continued to have a negative impact on rentals across markets, with values dipping by 2-5 per cent q-o-q in Nariman Point, the Bandra-Kundra Complex, Worli and Prabhadevi, mainly due to weak occupier demand and existing vacancy pressures.