Financial crisis correct office rentals

The global financial crisis has helped corporate houses find cheaper accommodations in the national capital. According to a latest survey by global realty consultant Cushman & Wakefield (C&W), rentals of office spaces in the IT Special Economic Zones in Noida fell by 14 per cent in the quarter and it was likely to decline further thanks to the financial meltdown.

The office rentals in the Gurgaon IT SEZ and in south Delhi’s micromarkets have also declined by 7 per cent each and C&W viewed that both these places would see further fall in rental values. “Most of the micro markets witnessed correction in rental values over the quarter due to slow leasing activity with companies adopting a cautious approach and anticipating further correction,” C&W said.

Other locations that registered depreciations in rentals include commercial locations of Gurgaon and secondary business districts and are likely to weaken in coming months, it added. India Inc has been feeling the heat of the global downturn with Index of Industrial Production declining to 1.3 in August this year and many corporate houses have tightened their purse strings, but high office rentals have proved to be a major area of concern.

C&W, however, said prime locations of the central business district (CBD) — Connaught Place — saw rentals surging by 9 per cent in the third quarter of 2008.

“... Rental values in the CBD locations firmed up due to limited availability, no scope of further new supply and buoyant demand,” it said. The consultant is of the view that rental values across most of the micro markets, except CBD locations, would likely remain under pressure in the short term with demand slowing owing to changing macro economic scenario.

In the last one year, rentals of office spaces in the IT SEZ locations in Noida and Gurgaon plummeted by 29 per cent and 14 per cent respectively, while that of CBD prime rose by 20 per cent in the period. In the third quarter this year, the overall vacancy level in the NCR increased by 7.3 per cent as projects in Jasola were completed, which were yet to be absorbed. Noida continued to have the highest vacancy level in the range of 16-17 per cent, especially in IT/ITeS segment, C&W said.

The consultant estimated that supply in the NCR in the three-month period witnessed an increase of 19 per cent over the previous quarter at about 5.04 million sq ft with majority of the supply going to Gurgaon (58 per cent), followed by Noida (23 per cent) and Delhi (19 per cent). “Absorption in Q3, 2008, was recorded at about 3.27 million sq ft registering an increase of 53 per cent over Q2,” the report said. It, however, said fresh absorption accounted for only 1.97 million sq ft in the quarter, while the remaining were through previous commitments. The demand during July-September quarter was recorded at 6.8 million sq ft, the study said.