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S. Shanker

Mumbai, Sept. 20 Rental values of office space in almost all major cities have reached a plateau and appear to be heading for a correction.

Except in Mumbai and central business districts (CBDs) of major cities, where supply-demand is not “skewed,” oversupply is expected to raise vacancy levels, especially in secondary areas, where enormous addition is taking place, according to global real estate advisory firm, DTZ.

“The Indian office space markets are now close to their second crest of the real estate cycle after 1995-96. We are already beginning to see a plateauing of rentals in most markets due to the oversupply build-up, except in Mumbai and CBDs of primary cities,” said Mr Ankur Srivastava, Managing Director, DTZ India.

The IT/ITES sector continues to account for sizable space absorption – as much as 80-85 per cent in Bangalore where 2.6 million sq ft was absorbed in the second quarter, against 1.8 million in the first.

The vacancy level in CBDs has been pegged at 5-7 per cent, though it is 35 per cent in Whitefield area of Bangalore due to oversupply, despite increasing leasing.

Average CBD rental is Rs 90 per sq ft per month.

In Delhi, only 0.81 million sq ft were taken up in the second quarter against last quarter’s 1.5 million, of which 0.54 million was in Gurgaon.

Average CBD rental values hovered at Rs 300 per sq ft per month.

However, upcoming SEZs in Gurgaon, Noida and Greater Noida are expected to throw up options to corporates – 41.2 million sq ft have been formally approved for IT/ITES SEZs in NCR in addition to 17.7 million notified for the sector.

Fresh demand in Pune for 2007 is projected at 5.8 million sq ft against an estimated supply of 9.7 million sq ft by the year-end.

Owing to high vacancy levels in the suburban markets, rentals have not shown marked appreciation.

Vacancy levels remained at 5-10 per cent in CBDs; 20-23 per cent in secondary areas and 22-28 per cent in the periphery.

About three million sq ft of non-SEZ space addition is expected to come up this year.

At least eight IT SEZs are expected to become operational in 3-5 years.

In Mumbai, average rentals in the CBDs were Rs 300-350 per sq ft per month.

Office space demand remains high with vacancy low even in the secondary markets.

About 6.4 million sq ft of fresh supply is likely to be added this year; about 37.5 million sq ft of area has been formally approved for IT/ITES SEZs in the region.

Rentals are expected to move upwards.

In Chennai, about 3.4 million sq ft were added in the second quarter, with 0.47 million sq ft absorption.

Vacancy levels in central and secondary business districts were low at 4-5 per cent in the absence of new supply in the second quarter.

New supplies are transforming the CBD and peripheral areas into significant business hubs.

Poonamallee Road and Ambattur, besides Guindy, are major growth locations.

In Hyderabad, fresh supply this year is estimated at 7.1 million sq ft, with an additional 25.7 million sq ft projected by 2010.

Rentals values in suburban markets increased quarter on quarter with a high of Rs 55 per sq ft a month.

CBD rentals averaged Rs 51 per sq ft per month with a rise of 10-15 per cent.

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