In the wake of global economic meltdown, demand for office space in India, along with that in other parts of Asia, remained weak with rentals plummeting by up to 10 per cent across the country in the first quarter of 2009.
Rentals in prime buildings went down by 10 per cent in the commercial business districts of New Delhi and Bangalore and by 6.7 per cent in Mumbai and there is not much chance of demand bouncing back in the near term, according to a report by global consultancy CB Ricchard Ellis (CBRE).
"Demand for office space in major cities in India remained weak as economic and business sentiment continued to deteriorate, particularly within the financial services and IT sectors," the report said.
According to the report, the main reasons for the downward demand and falling rentals are downsizing and cost cutting by companies, besides decline in leasing activities and renegotiation of rental agreements.
The report added that barring Seoul, all markets in Asia region went down by 7.9 per cent during the same period.
"With the global economic slowdown and substantial addition of supply in office space, rentals have declined across India. The office market rentals are expected to remain subdued in the short to medium term," CBRE Chairman and Managing Director-South Asia Anshuman Magazine.
Magazine, however, added that demand in the office sector in India could improve before other countries in the region if the global economy stabilises.
On the Asian market, CBRE said: "Overall office rents in Asia fell 7.9 per cent quarter on quarter in the first three months of the year, accelerating from 7.3 per cent decline in the previous quarter.
"Rentals have now declined 18.5 per cent from their peak in the second quarter of 2008, with Asia's major financial centres suffering the sharpest falls."
The price corrections have exceeded 34 per cent in Singapore and Hongkong. The only exception is the South Korean capital Seoul where rentals revised upwards slightly.
"Although the market outlook remains challenging and the decline in rentals is expected to continue, it is likely that the pace of decline will slow and leasing activity will begin to pick up, especially when corporations become more certain about their short-term business plans," CBRE added.
