The absorption of office spaces declined by 14% in seven major cities of India in the first three months of the 2012 calendar year compared with the previous quarter, according to property consultant DTZ.
The office rentals across the key prime markets remained largely unchanged as the overall market sentiments were subdued, it said.
The absorption during the January-March quarter stood at 7.22 million square feet against 8.42 million square feet in the previous quarter, DTZ said.
"Cautious sentiments prevailed in the market as domestic macro economic indicators remained uninspiring while contrary to expectations, no drop in benchmark interest rates were effected," the property consultant said in a statement.
During the quarter, DTZ said the demand was the highest in Bengaluru at 3.6 million square feet, followed by Mumbai at 1.2 million square feet.
It said no major change was seen in the composition of demand with IT firms accounting for majority of the take-up across the country.
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"Till such time as the interest rates are not brought down, we do not expect sentiments to improve. The sector needs at least a 100 basis points cut in interest by the end of the year to bring back the investors and serious buyers.
"The cumulative take-up falling by 14% quarter-on-quarter is a manifestation of the subdued mood of the occupiers," DTZ India CEO Anshul Jain said.
The occupiers are holding on to their decisions to take up commercial A grade office space, he said.
"We expect a turnaround sometime around October 2012. Rentals will remain stable or increase marginally till then," Jain said.
The report suggested that the cumulative vacancy across the seven key cities fell further to 22% by the end of Q1, primarily because the demand for space completely offset the new supply that got ready for fitouts, since some of the new space had already been pre-leased.
The project completions in Q1 grew by 30% quarter-on-quarter as pace of construction picked up in a few key markets such as Mumbai, Bengaluru and Chennai, where most of the demand was concentrated in the past year.