The report said demand for office space leasing had moderated in the first two quarters of the current fiscal with many corporate occupiers, especially in the IT/ITeS sectors either postponing or curtailing their expansion plans. 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, the report said.
Commenting on the findings of the report, Mr Anshuman Magazine, Chairman and Managing Director, South Asia for CB Richard Ellis 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.''
During the second quarter review, a slack in demand combined with the inventory build up had starting dampening the office space values across all the seven cities, albeit in varying degrees. It was also reported that while the Central Business Districts did not see much demand due to limited space, the peripheral markets saw increased demand due to quality space being made available at affordable prices.
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, ''Notwithsanding the gloomy picture we are still confident that the Indian growth story is secure and would continue''. It said rentals in the National Capital Region of Delhi was likely to remain stagnant for the next few quarters. On the other hand the demand for corporate office space is not likely to be affected in the next few quarters, especially in the micro-market of New Delhi, where maximum space take up is in this category rather than IT/ITeS.
In light of the global conditions and the fact that Mumbai is the financial capital of the city, rentals and capital values across most micro-markets will see a further correction. This can turn out to be more severe by mid 2009, if there is no improvement in the overall economic climate and the supply hits the market as per the timelines indicated by the developers.
The total space take up till quarter three of 2008 was 5.3 million sq.ft. As compared to this, the total absorption till Q3 last year was approximately nine million sq.ft. The space absorption in Bangalore has dropped quarter on quarter this year and clearly the economic slowdown in the global markets has left a mark on the Bangalore office sector. With the STPI benefits coming to an end soon, the next wave of developments in Bangalore are expected to be in SEZ spaces. Clearly the major developers in Bangalore are betting big on SEZs to lead the space take ups in the coming years.
In Chennai the absorption till date for 2008 is about three million sq.ft.; substantially lower than the space that was leased in the same time period last year. The long awaited Second Master Plan was eventually notified by the Government during Q3 2008 and is expected to open up avenues for re-development in the CBD and also the Peripheral and Suburban micro-markets.
In Hyderabad rentals have stabilized across various micro-markets. 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. The supply of Grade-A space in CBD is still nonexistent and the situation is not expected to be alleviated. In response to the sluggish market conditions, planned and under-construction supply is being delayed.
The office space sector in Pune is exhibiting some degree of slowdown in terms of take up and rental growth. Going forward, rentals are expected to either remain stable or perhaps undergo a correction in certain pockets.
In line with the subdued economic outlook, office leasing in Kolkata is also experiencing a temporary stagnation. Though the city has emerged as a viable destination for corporate set-up, backed by proactive government and adequate infrastructural development; certain adverse political developments have impacted the city's image. However, positive measures are being taken to rectify the harm done, it said.