40 percent decline in supply of office space in India

An accumulation of vacant stock, weak global economic cues, coupled with delays in expansion plans of occupiers and transaction closures led to more than 40% decline in overall supply of new prime office space in leading India cities in 2011.

A report—India Office Market View Q4, 2011—by global commercial real estate services firm CBRE said about 30 million sq ft of prime office space entered the market in 2011. This was significantly lower than in 2010, which witnessed approximately 55 million sq ft of office space entering the market across key cities.

“In several cities, there was a steep decline in the number of completed projects, with delays on account of rising vacancy levels and appreciating input costs impacting construction timelines, especially in the last two quarters of 2011,’’ it said.
The fourth quarter of 2011 witnessed an addition of almost 5.5 million sq ft of new supply across the leading cities. The new supply addition was largely concentrated in National Capital Region, Chennai, Hyderabad and Pune, comprising more than 80% of the entire supply addition in the fourth quarter.
“While this was comparable to the previous quarter, leading office hubs Mumbai and Bangalore witnessed negligible supply in the Grade A office segment, as existing vacancy pressures forced developers to delay project completions to 2012,’’ said the CBRE report.
“During 2011, we witnessed a continuing slowdown in supply of prime office space coupled with a decline in office space demand. This sentiment was indicative of the larger scenario of uncertainty within the corporate sector both in India and in the global market which impacted demand. The continuing volatility in the global and Indian financial markets, coupled with rising inflation and interest rates, has led corporates and developers to be cautious in their expansion plans. The tight liquidity situation, high interest costs and uncertain demand were deterrents for the developers to construct. It would be safe to say that this sentiment would remain, till the global and the Indian economic situation stabilizes,” said Anshuman Magazine, chairman & managing director, CBRE South Asia Pvt. Ltd.
Absorption figures, too, witnessed a decline during the past year. The market conditions led to an approximate 12% decline in overall absorption of office space in leading cities in 2011. The report said about 28 million sq ft of office space was absorbed in 2011compared to 32 million sq ft in 2010 across key cities. During the fourth quarter of 2011 (Oct-Dec), there was a total absorption of almost 6.5 million sq ft of office space across leading cities.