Net absorption of office space fell by 11 per cent in Delhi-NCR to over 7 lakh sq ft during January-March with corporates focusing on consolidation and relocation, according to a report by Cushman & Wakefield.
The net leasing of office space stood at nearly 7.96 lakh sq ft in the year-ago period.
The fall was steeper at 37 per cent compared with the previous quarter.
In its report 'Office Snapshot of Delhi-NCR' for first quarter of 2016, the property consultant said that Grade A office supply in Delhi-NCR was recorded at 2.5 million sq ft, an increase of over 82 per cent from the previous quarter.
"At 7,09,200 sq ft, Grade A net absorption declined by 37 per cent compared with the previous quarter due to consolidations and relocations by occupiers," C&W said.
"The surge in new supply along with the dip in net absorption during the quarter led to a rise in overall vacancy levels in Grade A developments," it added.
Overall vacancy was recorded at 30.1 per cent, a 1.1 percentage increase from the previous quarter. Rental values of most sub-markets remained largely stable during the quarter.
On outlook, the consultant said that about 2 million sq ft of office space, concentrated in Gurgaon and Noida, is scheduled for completion during the next quarter.
"Demand is expected to remain at similar levels during the next quarter. Rental values are expected to maintain status quo across sub-markets amidst stable demand," the report said.
Overall in the eight major cities of the country, C&W said the net absorption of office space declined by 13 per cent to 7.06 million sq ft in January-March 2016 compared with the corresponding period of previous year.
Although net absorption fell during January-March, the overall office demand increased by 19 per cent to 11.7 million sq ft across eight cities on the back of high pre-commitments.
As per the report, Delhi-NCR, Mumbai, Kolkata, Chennai and Pune saw drop in net absorption of office space.
However, Bengaluru, Ahmedabad and Hyderabad witnessed increase in net leasing.
Net absorption of office space rose maximum by 27 per cent in Ahmedabad to 0.19 million sq ft during the January-March quarter of 2016 compared with the year-ago period.
In Hyderabad, net leasing rose by 9 per cent 1.2 million sq ft, while in Bengaluru it went up by 1 per cent to 3.27 million sq ft during the period under review.
But the net absorption was down by 37 per cent each in Chennai and Kolkata at 0.44 million sq ft and 0.14 million sq ft, respectively.
Mumbai saw a drop of 49 per cent in net absorption of office space at 0.54 million sq ft, while in Pune it fell 32 per cent to 0.57 million sq ft.
"The GST has ushered in a wave of reforms that will
significantly impact the cost of storing inventory. The USD 90-billion Delhi-Mumbai Industrial Corridor is a key project that is expected to boost manufacturing and logistics facilities in the north-west region of the country," he said.
The report credited the rising demand for the domestic realty market to the availability of good-quality land.
It can be noted that the rising prominence of Bengaluru and Mumbai can be gauged from the recent growth of private equity investments into the sector that rose 55 per cent to USD 3.96 billion.
Investment prospects show a strong shift away from last year's favourites, which featured core markets in Japan and Australia, in favour of emerging-market destinations, with Bengaluru and Mumbai topping the list which also includes Vietnam and the Philippines, says the report.
Other major survey findings include steep decline in the popularity of gateway cities (except Shanghai). In particular, Singapore has sunk to near the bottom of the ranking as it struggles with overcapacity, falling demand and slump in its residential sector.
"This overarching shift reflects the difficulty in sourcing core assets in an environment where owners have few other places to invest their capital if they sell, together with the growing urgency of investors' 'quest for yield' as returns are squeezed ever lower," it said.
John Fitzgerald, Chief Executive of ULI Asia-Pacific, said: "The survey shows investors are on 'a quest for yield' as opposed to last year's results which could be seen as a 'flight to safety'. This is a testament to how fast economic conditions in India have improved, allowing Bangalore and Mumbai to climb from near the bottom to top the rankings in just a few years.
