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Demand for office spaces continues to boom despite the correction in the stock market. ET Realty figures out the how and why about this trend in the realty market

Despite correction in the stock market, demand for office space in the country remained buoyant with some moderation. According to a report on office demand in the country by Cushman & Wakefield, the demand for office space during January-March 2008 remained upbeat across major cities and stood at approximately 14 million sq ft.

Sanjay Dutt, joint managing director, India, Cushman & Wakefield says, "There has certainly been a marginal slowdown in the rate of growth across all segments of real estate and it's probably good news for the market to have some degree of correction, since the long-term demand continues to look robust and the next cycle could be more sustainable and strong."

However, good demand growth for the real estate space suggests that demand for residential real estate will pick up soon. If the economic growth continues to be over 8%, the activities in the real estate sector are likely to remain buoyant. The likely demand in the first quarter of '08 included absorption of 8.2 million sq ft and pre-commitments of approximately 5.5 million sq ft.

NCR of Delhi and Bangalore recorded the highest pre-commitments in the first quarter of '08, and together account for 56% of the total pre-commitments. When space is readily not available, tenants commit for the space that is likely to be built shortly. Such demand is termed as pre-committed demand.

According to the C&W report, the first quarter of '08 witnessed a total office supply of 15.54 million sq ft in the country, which constitutes approximately 19% of the total expected supply for the year '08 which is estimated to be 82.8 million sq ft.

NATIONAL CAPITAL REGION

The NCR witnessed a supply of 2.8 million sq ft in the first quarter of '08, accounting for 15% of the total supply likely to enter during the year. The entire supply was concentrated in Gurgaon and Noida, with each accounting for 1.4 million sq ft.

The IT and ITeS sector accounted for approximately 65% of the supply in the first quarter, of which major portion came from Noida. In Noida, supply is outstripping demand. In the first quarter, only 2 lakh sq ft of pre-committed office space has been absorbed. The vacancy levels in Noida continue to be the highest, in the range of 12-14%. In Gurgaon, the vacancy level has increased to 3% to 4% in the first quarter due to low occupancy rate in certain pockets.

Interestingly, as more supplies are expected to enter the market, the demand has also increased. This has resulted in appreciation in the rental value. According to the report, rental values in NCR increased in the range of 2-4% in select micro-markets such as CBD of Connaught Place and South CBD. The commercial segment of Gurgaon witnessed increase in rental rates by 3% owing to infusion of fresh supply in the quarter. However, because of oversupply condition in Noida, rental values in IT segment witnessed a 4% decline over the last quarter. At the same time, a scarcity of ready non-IT commercial segment in Noida led to 10% rental appreciation over the previous quarter.

According to the report, a majority of supply, in the range of 65% of the total supplies likely to enter during the year, will be in the sub-urban locations of Noida and Gurgaon, catering to the IT/ITeS sector. Therefore, the report said, these locations are likely to witness stabilization or marginal decline in the rental values in the short term, in anticipation of the huge supply of around 5.7 million sq ft in the second quarter of 2008.

ALL THE MARKETS

Rentals across office real estate markets in the country showed a marginal average increase of 6% over the last quarter. The rents in the CBD locations continue to witness relatively higher growth. Certain suburban and peripheral locations witnessed a slight decline in rental value, which dropped by 4%. The stability and marginal decline can be attributed to the high price points already attained by most of the micro-markets and the increased availability of ready to move in available options, said the report.

Courtesy : ET Realty 06-06-08

Date: 07 June 2008, Saturday
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