US Economic Slowdown May Constrain IT/ITeS Office Space Demand in Gurgaon and Noida
Economic slowdown in the US is anticipated to cause a reduction in demand for Information Technology (IT) and Information Technology Enabled Services (ITeS) office space in Gurgaon and Noida, according to a market report by a global realty consultant. The consultant indicates that this could lead to relatively higher vacancies as many markets face strong supply pipelines.
The Office Markets Situation
In its most recent report for the second quarter of 2008, Jones Lang LaSalle Meghraj observes that Indian office markets have shown expansion over the recent years. However, the report acknowledges a polarization in growth in demand across the nation in the last few quarters. The cities of Mumbai, Delhi NCR, Bangalore, Chennai, Hyderabad, and Kolkata are divided into three main segments for categorization.
The Impact on Susceptible Markets
These include locations considered susceptible to decelerated growth in demand for the latter part of 2008. Gurgaon and Noida (Delhi NCR suburbs), Whitefield and Electronic City (Bangalore suburbs), OMR (Chennai suburbs), Thane and New Mumbai (Mumbai suburbs), and Rajarhat (Kolkata suburbs) fall into this category.
IT/ITeS Demand Rationalization
For the markets labeled susceptible, demand from players in the IT/ITeS sector may adjust due to an economic downturn in the US. This development comes alongside a substantial supply pipeline in several such markets. The consultant suggests, “This scenario could result in a relative consolidation in the markets, leading to relatively higher vacancies, which may not directly impact rental prices in the short term.”
Outlook on Vacancies and Rental Prices
However, the consultant raises a caution flag.
“If the downturn in the global economy persists, we predict a rise in vacancies within these micro-markets due to substantial supply, placing downward pressure on rental prices next year.”