Developers build smaller offices as demand slows

To cater to the non-IT market, developers are discounting future rentals to generate cash flows during the downturn.

Developers of work places are shifting their focus to non-infotech companies and building smaller offices to buck the slowdown in the commercial property market, realty companies and consultants said.

“The demand for IT space has come down substantially, and we are focusing more on non-IT space.We are developing 2.5 million sq ft of commercial space, of which 1.5m sq ft has already been delivered and the rest will be completed in the next few months,’’ said R Nagaraju, deputy general manager, corporate planning, Unitech, a Delhi-based developer.

Unitech has dropped plans to develop two of the proposed six information technology parks, due to the slump in demand from the IT industry. At least 38 per cent, or 8.3m sq ft of its projected commercial space of 21.4 m sq ft, is on hold.

IT firms, which absorbed 70-80 per cent of office space a couple of years earlier, had cut their requirement sharply as the global economy slowed, consultants said.

DLF, the country’s largest developer, has halted construction work on nearly 16m sq ft of office and mall space out of 62m sq ft of planned construction. In the office space category, the developer has stalled construction on nearly 12m sq ft of the 36m sq ft planned, the company said recently.

Due to lower demand from IT firms and corporates, office rents have fallen 20-30 per cent in cities such as Mumbai, the National Capital Region and Bangalore, among others. Despite this, the percentage of vacant properties has shot up. Vacancy levels, under 5 per cent in 2007, have moved up to 8-9 per cent in 2008. Property consultancy JLLM expects it to reach 16-17 per cent if the projected space gets completed this year.

To cater to the non-IT market, developers are doing everything from building smaller offices, selling properties floorwise and discounting future rentals to generate cash flows during the downturn.

“Non-IT firms are demanding smaller spaces today. We are thinking of cutting sizes of our big offices, so that we can provide customised products to our clients”, said Neetal Naarang , assistant general manager, corporate communication, Parsvnath Developers.

Said Naveen Raheja, managing director, Raheja Developers: ‘’There was a time when clients used to demand 350,000 sq ft space and we did not cater to customers that required office space less than 2,000 sq ft. However, we are ready to deliver even 500 sq ft of office space today.’’

Analysts say developers cannot change their product mix overnight as they have to revise plans and change operations. “It will take at least a couple of months. Just as affordable housing is the norm today, they have turned to affordable offices,’’ said Akshaya Kumar, chief executive of Park LaneProperty Advisors.