Demand for office space slows down across India

New Delhi, Oct 20: After hitting the housing sector, the global meltdown is impacting office space absorption in India, with all major cities marking a slowdown in the office rental market, according to a report released here Monday.

The India Office Market View report released by CB Richard Ellis, a global realty consultancy, said seven major cities showed a marked slowdown in demand during the quarter ending Sep 30, and office space leasing had moderated in the first two quarters of the year.

"Many corporate occupiers, especially in the IT and ITeS sectors have postponed or curtailed their expansion plans," the report said.

"Together with this, the fund availability for the sector, which was already constrained due to the inflation control measures of Reserve Bank of India, will be further curtailed by the recent financial crisis in the US and its ripple effect on rest of the world," it added.

Anshuman Magazine, chairman and managing director of CB Richard Ellis' South Asian operations, said: "The global economic slowdown has started to show early signs of impact on the offices market.

"The third quarter of 2008 has seen some decline in the office space take up across the country. Going forward this is expected to keep office rentals under check," Magazine said.

"Another trend that came to the forefront was the increased flexibility on the part of the developers and landlords to negotiate on the quoted commercial terms - a reflection of the pressure being felt in the market," the report said.

Going by region, rentals in the National Capital Region are likely to remain stagnant for the next few quarters. On the other hand, the demand for corporate office space will not be affected in the next few quarters, especially in the micro-market of New Delhi.

In Mumbai also, office occupancy was low and rentals and capital values across most micro-markets will see a further correction. This can turn out to be more severe by mid 2009.

The trend has hit the IT city of Bangalore as economic slowdown in the global markets has clearly left a mark on the Bangalore office sector.

Similarly, the occupancy of office space in Chennai, Hyderabad, Pune and Kolkata was also substantially lower than last year.

Considering the current demand scenario and with developers postponing and further phasing out the supply, rentals are not expected to move upwards for the next few quarters.

In response to the sluggish market conditions, planned and under-construction supply is being delayed.

"Overall the office market space in the key cities in India has witnessed a slowdown, which is expected to continue over the next few quarters. This is reflective of the global economic conditions affecting commercial real estate in India," the report said.