In the second quarter of 2008, the commercial real estate sector suffered noticeably as companies, particularly in the IT and BPO sectors, hesitated to move forward with expansion endeavors due to fears surrounding an economic slowdown. This cautious attitude resulted in a muted performance for the commercial property market.
During this period, office space demand significantly lagged, with supply levels in major urban areas reaching a substantial 18.07 million sq. ft. Despite this, demand amounted to only 9.74 million sq. ft. as reported by Cushman & Wakefield. Notably, absorption — which refers to the process of companies moving in or commencing fit-out work — accounted for 6.36 million sq. ft., complemented by merely 3.38 million sq. ft. from new pre-commitments. The situation revealed an imbalance, with certain micro-markets, like Noida and Rajiv Gandhi Salai in Chennai, showing an oversupply that consequently elevated vacancy rates.
Additionally, the report observed that the second quarter maintained stable rental values throughout several micro-markets in these key cities. However, some areas, particularly central business districts and off-CBD locales, experienced rental hikes between 3-5% compared to the previous quarter. Conversely, certain peripheral regions within the National Capital Region and Chennai experienced a decline in rental prices, largely attributable to excess supply and the postponement of various development plans for upcoming projects.