Property developers like DLF, Omaxe, Indiabulls and a few others delayed their office projects in Delhi and Mumbai — the two key office markets in the country — as companies, IT firms and financial institutions slowed their expansion due to the economic slowdown.
Vacancy levels in the office space have gone up five times in Delhi and Mumbai markets and crossed 10 per cent levels in cities like Hyderabad in the past one year due to the slowing economic growth, according to a report released by property consultancy firm Jones Lang LaSalle Meghraj (JLLM).
According to JLLM estimates, of the total 1.5 million sq ft of space estimated to be completed in the main business hub of Delhi in 2008, work on only 0.5 million sq ft was completed. Mumbai, which was expected to add 10 million sq ft in 2008, could complete only on 4.5 million sq ft, JLLM said.
| VACANCY LEVELS SHOOT UP | ||
| City (prime biz areas) | Q4 '07 | Q4 '08 |
| Delhi | 2.2 % | 5.3% |
| Mumbai | 1.1% | 5.0% |
| Bangalore | 0.5% | 1.5% |
| Hyderabad | 5.00% | 10.6% |
“Companies are under tremendous pressure to cut costs and operate in the most efficient way. Occupiers are currently implementing all means of cost cutting, like reducing headcount, consolidating the number of branches/offices and moving out from high-cost locations to low-cost ones. All these efforts, aimed at cost-effective operations, are resulting in restrained demand for office space,” JLLM said.
Vacancy levels in the office hub of Delhi went up to 5.3 per cent in December quarter of 2008, against 2.2 per cent in the corresponding quarter last year. Mumbai, on the other hand, has seen vacancy levels of 5 per cent in fourth quarter of 2008, against 1.1 per cent in Q4 of 2007. Bangalore saw vacancy levels of 1.5 per cent during the period against 0.5 per cent in the corresponding period the previous year.
DLF has halted construction work on nearly 16 million sq ft of office and retail mall space out of the 62 million sq ft of planned construction. In the office space category, the developer has stalled construction on nearly 12 million sq ft of the 36 million sq ft planned, the company said recently.
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The fact that companies, information technology and financial services firms are booking less office space is evident from the number of net absorption against the total completion. Mumbai saw a net absorption of 3.9 million sq ft of space, against the completion of 4.4 million sq ft in 2008, which means the 11 per cent of completed space was vacant. The net absorption in Delhi was nil.
JLLM expects projects to be delayed due to massive supply and less demand from companies. “Considering the massive supply in the pipeline and decreasing demand from occupiers, developers will face a tough time in closing pre-commitment deals in under-construction projects. This demand-supply mismatch will lead to delay in the completion of many projects, it said.
About 7 million sq ft of space is expected to be completed in 2009 in Mumbai.