Office space supply falls 40% in 2011

Prime office space supply dropped 40 per cent in 2011, compared to 2010, according to a report by CB Richard Ellis, a leading real estate consulting firm.

An accumulation of vacant stock, weak global economic cues, coupled with delays in expansion plans of occupiers and transaction closures resulted in more than 40 per cent decline in overall supply of new prime office space in top cities of India during 2011.

The CBRE forecast for the next few quarters remains bleak, indicating a negative impact on the rental value.

Approximately, 30 million sq ft of prime office space entered the market in 2011, compared to 55 million sq ft in the previous year.

More than 80 per cent of the new supply addition was largely concentrated in NCR, Chennai, Hyderabad and Pune, in the fourth quarter of the calendar 2011.

Some of the leading office hubs witnessed negligible supply in Grade A office segment, as existing vacancy pressures forced developers to delay project completion to 2012.

While NCR and Bangalore led in supply addition, most cities witnessed a drop in the number of completed projects.

Delays on account of rising vacancy levels and appreciating input costs had an impact on construction timelines majorly in the last two quarters of calendar year 2011.

Connaught Place in Delhi did not witness any substantial addition in supply.

Gurgaon on the other hand continued to be the hub of office transaction activity in NCR, with an addition of almost 1.2 million sq ft of Grade A supply, largely in commercial and IT/ITeS segments.

Nariman Point in Mumbai saw no addition of fresh supply, while absorption of approximately 10,000 sq ft was recorded in the secondary space.

Anshuman Magazine, chairman & managing director, CBRE (South Asia), said, "The continuing volatility in the global and Indian financial markets, coupled with rising inflation and interest rates, has led companies and developers to be cautious in their expansion plans".

He added that the tight liquidity situation, high interest costs and uncertain demand were deterrents for developers.

"It would be safe to say that this sentiment would remain, till the global and the Indian economic situation stabilizes," Magazine said.

Absorption of office space dipped nearly 12 per cent across leading cities of the country in 2011 to 28 million sq ft, from 32 million sq ft in 2010.

In the October-December 2011 quarter, there was a total absorption of almost 6.5 million sq ft of office space across top cities such as Bengaluru, NCR, Chennai and Hyderabad.

These cities also accounted for almost 80 per cent of the entire space getting absorbed in the country.

According to CBRE, the outlook for office market segment remains weak for the next few quarters on the back of a slowing economy.

The IT/ITeS segment is expected to witness supply pressures, with demand not being able to match new supply addition, which might have an adverse impact on rental values in this segment, the report said.