Office markets across the country continued to show a downward trend as most markets recorded negative growth in rental values. Supplies across eight major cities in India outstripped demand by almost 45 per cent.
Mumbai, the financial capital of India, witnessed the sharpest decline in rental values in the first quarter of 2009, while the National Capital Region witnessed significant decline in rental values in central business district in the first quarter of 2009, according to Cushman & Wakefield's latest office market report.
Micro markets in Mumbai including Lower Parel and Worli recorded drops of 37 per cent and 29 per cent respectively, in the preceding three months. Rentals in the central business district of Nariman Point fell by 13 per cent in the first quarter of this year, compared to 20 per cent in the previous quarter.
Rentals in NCR's CBD, mainly Connaught Place, dropped by 17 per cent, the highest in the last three years, the property consultant said in the report. The drop comes after a 14 per cent decline in the previous quarter.
Bangalore rentals fell in the manageable range of 3-7 per cent in key markets.
The total fresh office space supply in the first three months of 2009 across eight major cities in India was 11.5 million square feet, while absorption stood at 5.78 million square feet.
Demand declined by approximately 30 per cent over the first quarter of 2008. Pre-commitment generated in the first three months of 2009 was 0.6 square feet, a decline of over 88 per cent over the first quarter last year.
"The first quarter of the year can be termed as the weakest, so far, in terms of commercial office demand across major cities in India compared to a similar period over the last two-three years,'' said Kaustuv Roy, executive director, Cushman & Wakefield.
Bangalore witnessed the highest new office space supply of approximately 2.81 million square feet and also the highest demand of 1.29 million square feet.
NCR and Mumbai witnessed fresh office space supply of 2.6 million square feet and 2.47 million square feet respectively and absorption of 0.8 square feet and 0.9 sq ft respectively.
Chennai, which had been reeling under over supply pressures, saw moderate supply 0.98 square feet and absorption of 0.9 square feet.
Hyderabad and Ahmedabad saw no addition to the current stock. Vacancy levels had remained largely consistent to last quarter with most IT/ITeS destinations witnessing high vacancy levels.
Chennai's peripheral location (Rajiv Gandhi Salai) recorded the highest vacancy of approximately 42 per cent, while the city average was at approximately 18 per cent.
The lowest vacancy was recorded in Ahmedabad at 5-6 per cent due to limited leasing activities and no new supply in the market.
Mumbai recorded a vacancy levels of around 11-12 per cent, while vacancy levels in NCR stayed at a manageable 8 -10 per cent.
Bangalore, Pune and Kolkata saw vacancy levels at an average of 16 -18 per cent. Hyderabad saw some slowdown and therefore recorded vacancy levels of 23 per cent of which prime suburban region comprising Banjara Hills and Jubilee Hills recorded 35 per cent vacancy.
"Re-negotiations and migration to more cost-effective locations has been the norm for the cautiously advancing corporate sector. However going forward we are likely to see supply contraction,'' said Roy.
"Acutely affected sectors like IT/ITeS and certain corporate office locations will see deferment of projects to bridge the gap between supply and demand. While rentals are expected to be under pressure over the short-to-medium term, moving forward lower rentals are likely to have a more positive impact on the absorption numbers," he added.