Office Rentals Stabilize Across India
Office rentals, which declined by 40% from their peak in mid-2008, have stabilized across the nation in the September quarter. This stabilization is attributed to fresh bookings for office spaces, which have partially reduced inventories, as reported by international property consultant CB Richard Ellis.
Major City Trends
- No Change: Rentals remained unchanged in significant office locations in the National Capital Region, Mumbai, Bangalore, Hyderabad, and Kolkata.
- Decline: Rentals in Chennai and Pune fell by 5-6% in the quarter ending June 30.
- Increase: Rentals in Connaught Place, Delhi, and Gurgaon, Haryana, rose by 5-8% in the last quarter.
Industry Perspective
Anshuman Magazine, Chairman and Managing Director for South Asia at CB Richard Ellis, commented on the rise in demand: "The increase in demand is largely due to improving economic conditions, positive market sentiment and growing corporate confidence. However, it will take some time for the supply-demand gap to get bridged. Thus, both rentals and capital values are expected to remain stagnant or under downward pressure in the medium term."
Mumbai Market
In Mumbai, the commercial office space market has shown a slight increase in demand, but rentals remain competitive. The September quarter saw cumulative lease transactions of approximately 95,000 square feet, compared to 83,000 square feet in the June 2009 quarter.
However, with Mumbai ranking 15th among the world's largest office construction sites with around 3.5 million square feet of office space coming up in Extended Business Districts (EBD), capital values remain low. This has led to a few unexpected outright purchase transactions. Recently, Motilal Oswal, a brokerage firm, purchased a 90,000 sq feet office building for Rs 156 crore, constructed by K Raheja, at a rate of Rs 17,333 per square feet, compared to the prevailing rates of Rs 19,000-21,000 per square feet.
Market Sentiment
Sanjay Dutt, CEO (business) at JLLM, an independent property consultant, noted: "Indian corporates firmly believe that current valuation of commercial property is attractive, so they are capitalising on it rather than leasing as is being opted by MNCs."