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CB Richard Ellis found that the slowdown has not only foiled expansion plans, but also put a squeeze on the burgeoning rental space.
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In its quarterly report providing a summary of office rental spaces across seven cities in India, CB Richard Ellis found that the slowdown has not only foiled expansion plans, but also put a squeeze on the burgeoning rental space. The reasons vary.

In its report of a review conducted across seven cities by CB Richard Ellis, a commercial real estate services company, of office rental spaces, it saw a different trend across various cities. The report states the marked slowdown in demand and office space leasing that had moderated in the first two quarters of the year, further tapered in Q3 2008.  This is because many corporate occupiers especially in the IT/ITeS sectors have either postponed or curtailed their expansion plans.

Together with this, the fund availability for the sector which was already constrained due to the inflation control measures of the Reserve Bank of India will be further restrained by the financial crisis in the US and its ripple effect. There was also an increased flexibility on the part of the developers and landlords to negotiate on the quoted commercial terms. 

National Capital Region (NCR)

1. Central Business District (CBD) - Connaught Place

Though CBD continued to be a key location, office space leasing has been slow due to unavailability of quality supply. There has also been a marginal correction in the rentals. The space released in the market is the lease tenures getting over and old tenants not continuing with the leases.

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The secondary business district of Nehru Place did not witness any leasing transactions in Grade-A properties on account of lack of new supply.

Three new projects were available for fit-outs in Jasola this quarter. The supply of 1.2 million sq ft has put pressure on the existing rentals. However, basic infrastructure is yet to be ramped up in Jasola, which continues to be a sore point with most occupants. In Saket, a few malls have been offering upper floors as office space. But due to lower usable areas, common atriums and lifts and higher quoted rentals, there are few takers. The NBCC project in Saket that was ready last quarter still has only 60% occupancy.

3. Peripheral markets - Gurgaon

Gurgaon witnessed a slight correction in values last quarter and the trend continued in Q3 2008 as well. Pre-leasing activity has been quite slow, a situation that was uncommon before. Sohna Road, which has a substantial development underway, has been slow on leasing activity. This is primarily due to availability of ready supply in the more developed areas.

Noida

It continues to be a market with significant supply both for industrial as well as Grade-A IT space. But rentals are likely to remain low in the next 2-3 quarters.

Mumbai

1 CBD (Nariman Point)

Even though the demand for space in CBD from private equity firms and financial institutions remained firm, some impact of the slowdown has been evident. Rentals across premium buildings have witnessed a correction and are expected to continue next quarter as well. The quarter also saw some of the large financial institutions renewing their leases.

2. Extended Business District (Lower Parel & Worli)

The permission to use up to 80% of the total built-up area in existing as well as new IT parks for financial services entities has given new life to office space leasing. Many developers who were looking at doing office space buildings are contemplating a conversion of projects and developing IT space.