Oversupply is expected to keep the rental market for office space in metro cities under check over the next three to four quarters.
In the next two years, 183.1 million sq ft of A-grade office space is estimated to be added in seven big cities, while the demand will be around 122.4 mn sq ft, said a report prepared by Knight Frank India.
A forecast by this international real estate consultancy suggests that “in Mumbai, rentals will fall for some more months and bottom out in the second half of next year, while in the national capital region (NCR), rents may bottom out in the second half of the current financial year in most areas.” In both metros, the correction in rents would be between 40 to 60 per cent by the first half of next year of their peaks in 2007-08.
Knight Frank has developed a model to forecast rents for office space, taking into account data of the past 15 years. These include GDP, industrial investment projections, behaviour patterns of consumers, supply-demand scenario and so on.
Knight Frank proposes to refine this model along the way and test it for its accuracy. Pranay Vakil, chairman of Knight Frank India, said he hoped the attempt works; if so, it could help clients take more informed decisions.
Knight Frank is the first agency to develop such a forecasting for rents and the model is based on past data and economic growth projections and other market variables. It also assumes that medium to long-term consumers continue to behave in the manner they did in the past.
According to the forecasts, average rentals in Gurgaon are Rs 51 a sq ft and expected to fall to Rs 44 in the second half of the current fiscal and may remain around that for a year. Rents were at their peak at Rs. 120 in 2007-08. For Noida, rents have fallen from Rs 90 in 2007-08 to Rs 44 now and will further fall to Rs 34 in the first half of the next fiscal.
In Mumbai, average peak rentals in most office areas have fallen by 40-60 per cent and are expected to come down by another 5-10 per cent in the second half of the current fiscal.
