India may see 20% fall in office rentals: report

Office space rentals in India are expected to fall up to 20 per cent in the next three quarters, with key cities like Delhi and Mumbai slated to witness a sharp decline of 50 per cent.      

According to the global real estate consultant Jones Lang LaSalle (JLL), the decline in property prices in India is expected to continue through the year with office rentals expected to fall by 15-20 per cent, as the slowdown-hit realty sector is likely to see a recovery only in the second half of 2010.      

"The largest decline in rentals is expected in Delhi and Mumbai, expected to halve its peak," JLL said in a report on global market perspective.      

The consultant further said the office rentals in Chennai, Kolkata, Hyderabad and Pune are expected to decline between 30 per cent and 40 per cent from their peak during the next three quarters, while the same in Bangalore will fall 15-20 per cent from its peak.      

On the current economic scenario, the report said the recent gains in the equity market propelled optimism in the economy and if it continues, a recovery is expected by early 2010.      

"Although the effects of this upturn would start showing signs in the real estate sector, the gains would definitely come in second half of 2010, when fresh demand again builds up in the market and the latent demand suppressed on fears of a downslide comes back," it added.

The consultant said central business districts of Delhi and Mumbai witnessed up to 30 per cent fall in commercial rentals during the January-March period over the previous quarter due to slackening of demand from banking, financial services and insurance sectors.      

Kolkata, Hyderabad, Chennai and Pune also saw commercial rents coming down by 10-15 per cent.     

JLL also said many retailers are renegotiating with property owners on rentals and looking for various options, like zero rental schemes, minimum guarantee and revenue sharing models.      

"There have been instances of budget brands expanding their portfolios in some cities considering the affordable rents offered by landlords," it said.      

Pointing out the huge potential of the housing sector in the country, JLL said residential segment is expected to lead recovery in the property market in terms of sales volume and asset pricing.