India's IT Hubs Grapple with Oversupply of Office Space
Experts Warn of High Vacancy Rates and Financing Woes for Builders
Nipun Sahni, Director and Global Head of Commercial Real Estate at Merrill Lynch Capital, highlighted a pressing concern in India's IT sector. Speaking at a Ficci seminar, Sahni noted that the sheer number of information technology parks and special economic zones on Old Mahabalipuram Road (OMR) in Chennai surpasses the entire IT industry's demand in India.
"It will be difficult for builders to raise finances for their other developments and in subsequent phases, projects will also be postponed." - Nipun Sahni
Symptomatic of a Larger Issue
Realty analysts concur that OMR's situation is indicative of the widespread overbuilding in many Indian pockets. Two other key areas anticipated to face similar challenges are:
Lower Parel in Mumbai:
- Current ready office space: 4.5 million square feet
- Projected additional space by 2009: Minimum 5 million square feet
- Total anticipated commercial space: 9.5 million square feet
- Notable contributors to this space include DLF (adding 3.8 million square feet), Indiabulls Real Estate, Peninsula Land, and Orbit Corporation.
Noida in the National Capital Region: Expected to see high vacancy rates due to oversupply of A-grade office space.
The Ripple Effect of Expansion
Top players such as DLF, Unitech, Emaar-MGF, Akruti City, and Puravankara have expanded into previously untapped states, inadvertently creating oversupply pockets in close proximity to each other. This phenomenon is a stark contrast to the building boom that began in 2007 across emerging markets like Chennai, Hyderabad, Bangalore, and Indore.
The Shift in Market Dynamics
The Reserve Bank of India's rate hikes, coupled with the wealth-depletion effect of plummeting stock markets and economic headwinds, have significantly altered the narrative from a boom to a scenario marked by oversupply and potential stagnation.