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Managing the right of return


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.

2. Secondary NCR business district

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.


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.


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.

3. Alternate Business District (Bandra-Kurla Complex – BKC)

The alternate business district of Bandra-Kurla remains a key office leasing market with good connectivity and ample space options. The BKC has been a preferred location for banking and financial institutions. Rentals values continue to remain firm.

On the supply front, Platina, an upcoming premium project has begun evincing interest from prospective tenants.

4. Secondary Business District (Western Suburbs & Central Suburbs)

The secondary business districts of Andheri-Kurla Road, Powai and Malad have not seen any substantial activity in the office sector in the current quarter.

The ongoing work on the Andheri-Kurla road for the Mumbai Metro Project is deterring occupiers from considering this location for the time being.

5. Peripheral Business District (Navi Mumbai & Thane)

Thane and Navi Mumbai remain preferred locations for IT and back-office operations due to the lower rentals and these pockets are the only ones in Mumbai that have not witnessed a correction in rentals.


1. CBD (MG Road, Richmond road, Residency road)

The CBD of Bangalore is the preferred destination for small space occupiers and companies from the financial and services sectors. New supply in this micro-market has always been limited.

However, in this quarter some amount of space has been added to the stock in the CBD on account of relocations and lease expiries. Besides this, a fair amount of Grade-A supply is under construction in this micro-market and will be completed during 2009.

In Q3 08, of the 140,000 sq ft absorbed in CBD, 18,000 sq ft. was leased in new developments and the remaining taken up in second generation space. As a result of companies downsizing their operations, this quarter was marked by significant amount of Grade-A space in prominent developments being released for sub-leasing. The rentals and capital values have remained stable during this review period in the CBD micro location.

2. Non CBD (Indira Nagar, Koramangala, Old Madras Road, CV Raman Nagar)

This micro-market continues to witness considerable interest from corporates in the high-end engineering and R&D sector looking at setting up or expanding their operations in Bangalore. About 550,000 sq ft of committed space was released in the current quarter and this eased the supply situation. The rental trends in this micro-market have remained stable in this quarter.

3. South Bangalore (Bannergatta Road, JP Nagar, Jayanagar, Mysore Road)

The south Bangalore micro-market has witnessed limited office space absorption in the current quarter. As opposed to this, by virtue of the presence of large residential catchments like JP Nagar, Jaya Nagar, Padmanabha Nagar, Bannerghatta Road and BTM layout in the micro-market, there has been robust retail activity.

4. Peripheral Business District (Outer Ring Road, Whitefield, Electronic City, North Bangalore)

The Outer Ring Road (ORR) stretch between KR Puram junction and Sarjapura road has been a major office space destination. All major developers of Bangalore have held land parcels in this location and are implementing their construction plans. Approximately one million sq ft of new land came up in this quarter alone. The availability of large Grade-A space and good connectivity to the international airport via the ORR are major factors that have contributed to the bullish trend in this micro market. The rentals in this micro-market have remained stable in this quarter for ORR.

Early this year, the Whitefield micro-market has gained favour with occupiers, chiefly due to reduction in travel times after the completion of Marathalli flyover, and low availability of Grade-A supply in other micro-markets.

The Electronic City micro-market is yet to follow Whitefield on the path to recovery from the oversupply situation.

This is mainly because the access to E-city still remains an issue and the elevated highway work is not complete.
In North Bangalore, two SEZ projects have received approval. This micro-market currently has limited ready to move in space (approximately 300,000 sq.ft.).


1. CBD (Anna Salai, T Nagar, R K Salai, Alwarpet, Nungambakkam)

There has been an overall reduction in office space concentration in Chennai, and this was evident in the demand for space in CBD locations as well.

2. Off/Non CBD (MRC Nagar, Guindy, Taramani)

The absorption recorded in this micro-market was much less than that recorded in the previous quarters. However, as of now the rentals have been stable. Upcoming SEZ projects would add significantly to the future supply.

3. Suburban & peripheral business district (Rajiv Gandhi Salai, GST Road, Poonamallee High Road, Ambattur)

As in the other micro-markets, concentration in the suburban and peripheral markets remained low. However, competitive rentals continue to give the suburban and peripheral business district an edge over other micro-markets. Also, most of the SEZ projects are currently located in these areas.


1. CBD (Begumpeth, Somajiguda; Road No. 1, Banjara Hills)

The CBD continued to witness stable demand from non-IT companies and this is evident from the number of transactions that have taken place in the micro-market this quarter. Supply remained limited due to space constraints.

2. Extended Business District (Parts of Banjara Hills, Jubilee Hills, Secundrabad, Himayatnagar)

A small amount of lower grade space has come up in scattered locations of Jubilee Hills and Banjara Hills. Demand in the micro-market has been considerably low. The average rentals here are now at par with the rentals in the CBD.

3. Suburban Areas (IT corridor & Gachibowli, Madhapur, Nanakramguda)

This micro-market remains to be the favoured destination for the IT/ITeS companies due to presence of good business support services. However, demand has been subdued and rentals remained at the same level as the last quarter.

4. Peripheral Business District (Shamshabad, Pocharam)

A lack of business support services has prevented the peripheral business district from being considered as an alternate location for IT/ITeS services. Some ready for fit-out have yet to be leased. This, together with the compounding problem of tapering demand elsewhere in the city has put further development on hold.


1. CBD (MG Road, Kalyani Nagar, Koregaon Park, Bund Garden, Dhole Patil Road)

The CBD continues to be a preferred destination for non-IT commercial office space users. However, this scenario may change in the next few months as approximately 500,000 sq ft of Grade-A commercial office space would be available the CBD by Q4 2008 onwards.

2. Off CBD (Viman Nagar, Magarpatta, Aundh, Baner, Shanker Seth Road, Senapati Bapat Marg, Nagar Road)

An incremental addition to the IT/ITeS sector has slowed down due to decrease in volume of transactions and enquiries. Developers have adopted a wait-and-watch policy. With requirement for Grade-A commercial space in demand, developers are now concentrating on this segment. Also, there has been an availability of furnished, second generation IT/ITeS space in the off-CBD locations. This has been on account of existing occupiers moving to the peripheral markets or newer projects due to expansion.

3. Peripheral Business District (IT Corridor Hinjewadi, Hadapsar, Talawade & Kharadi)

About seven SEZ projects have been launched or are under construction in the peripheral locations. However, in light of the current slowdown, a few developers have deferred their decisions to commence construction. Though the completed SEZ projects have seen high levels of absorption, there could be an increase in vacancy levels in future. Developers are likely to reduce rental values in a bid to attract companies.


1. CBD (Chowringhee, BBD Bag, Park Street, Camac Street)

The CBD locations of Kolkata are the first choice for corporate offices and this has been the reason for negligible vacancy levels. However, with increased number of companies preferring the peripheral markets on account of lesser real estate costs and better connectivity, there has been a mild slowdown in the uptake of space in these locations in the recent times. Rental values have been stagnant and in some cases landlords are willing to discount on the quoted rentals.

2. Secondary Micro-markets (Em Bypass, Kasbagariahat, Sarat Bose)

The secondary micro-market has not witnessed any notable office space absorption in the recent quarters. Values here have remained largely stagnant.

3. Peripheral Markets (Salt Lake and Rajarhat)

This market was planned to house most of the IT/commercial setup and has been severely impacted by the controversy arising out of the Singur (Nano plant) issue. There has also been a substantial supply of IT & ITeS space and take-up has been low.

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