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Thursday, 15 May 2014

Slow economic growth has adversely affected India’s office real estate across major cities. Companies have been skeptical about new launches and expansion plans over the last six months and this has resulted in a downward trend in absorption. However, Chennai and Pune alone have shown positive growth in net office space absorption in the first half of the current fiscal.
According to Cushman & Wakefield, the leading global real estate consultant, net absorption across top eight cities- Chennai, Delhi NCR, Mumbai, Pune, Bengaluru, Hyderabad, Kolkata and Ahmedabad- in the first half (H1) of 2013 was recorded at 10.9 million square feet (msf). This denotes a decline of 15% compared to the corresponding period last year.
Attributing the low absorption rate to the decline in expansion by companies in the first quarter, the realty consultant said that this trend has adversely affected the overall absorption level in H12013. However, the second quarter (April-June) saw a marked improvement in the office space absorption level.
According to the report, the second quarter of 2013 recorded a total absorption of about 7.2 million sq ft, which was marginally higher than the same quarter last year. Due to the dismal performance of Q1 2013, which showed absorption levels going down by over 36 percent, the total absorption declined for the first half of the year.
Even in Mumbai, the commercial capital of India, the net absorption level has gone down to 10% at 2.4 msf compared to last year. Pune and Bengaluru too recorded a low net absorption in H1 2013 with 1.7 msf and 1.8 msf, respectively. Though Bengaluru witnessed a seven-fold increase in absorption in Q2 2013 when compared to the last quarter, it could not improve the total net absorption for the first half of 2013, which showed a decline of 22%, compared to the first half of 2012.
The only two cities, according to Cushman & Wakefield’s survey, which recorded positive growth in the net absorption level, were Chennai and Pune, with 6% and 37%, respectively. Kolkata was at its negative peak with -52% of 0.49 msf while Delhi NCR was at -42% (1.42msf), followed by Ahmedabad at -21% (0.27msf) that showed the largest decline.
As a result of sluggish growth and pessimism amongst developers in launching new projects, fresh supply during H1 2013 declined by 3% at 17.6 msf. Vacancy rates too got affected at the end of Q2 2013, which were noted at 19.6%- a rise of 1.7 % from the corresponding period last year.
“Amidst negative market sentiments, which include the depreciating value of the rupee against the dollar, poor GDP growth projections, political volatility and unrest in global economic conditions, office real estate markets in India have been able to maintain their level. Even though the absorption registered a 15% decline in the first half of the current fiscal, the positive growth during the second quarter of 2013 is being viewed with some hope. Though there has been a cautious attitude among corporates in their expansion plans, the trend has been positive, but slow. By the end of March 2014, the office space absorption is expected to be at about 30 msf with key markets such as Mumbai, Bangalore and Pune leading the way,” Sanjay Dutt, Executive MD, South Asia, Cushman and Wakefield, commente
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