Companies which have deferred expansion plans in the National Capital Region due to high property prices can now think of going ahead as rentals for office space in IT and SEZ segments have declined by up to 13 per cent during the second quarter of 2008.
“The rentals of IT/SEZ segment in Gurgaon and Noida witnessed correction with values declining by 3 per cent and 13 per cent over the quarter, respectively,” global real estate consultant Cushman & Wakefield (C&W) said in its report on office market for second quarter of 2008.
The anticipated supply and deferred expansion plans of the companies resulted in the decline of rents, the consultant pointed out.
However, the office rentals in Delhi have risen but the pace of growth has slowed down. In Central Business District (Prime) and other micro markets, rentals rose by up to 4 per cent only. Limited supply and robust demand due to convenience of the location pushed the rentals in these areas.
Giving the outlook, C&W said office market is expected to remain firm with rental values rising except for the IT and SEZ segment of Gurgaon and Noida, which are likely to see an estimated supply of 3.3 million sq ft during the third quarter that may raise pressure on rental values in the short term.
“Noida (IT and SEZ segment) is likely to witness correction in rental values due to over supply and high vacant stock,” it added.
During April-June quarter, the average vacancy rate across NCR was about 7 per cent but Noida witnessed the highest vacancy rate of 15 per cent as the demand supply gap further widened with the infusion of additional supply.
The demand for office space during the quarter stood at 3.3 million sq ft, of which 64 per cent was contributed by absorption while the remaining constituted of pre-commitments.
Total supply was recorded at 4.3 million sq ft in NCR, of which 60 per cent was IT/ITeS specific. Supply was spread across all micro-markets with majority of it in Noida at 54 per cent.
In a separate report on retail space in NCR, C&W said: “Limited availability in prominent main street locations such as Khan Market, Connaught Place and Basant Lok has resulted in a slowdown in leasing transaction volumes that has kept the rentals firm.”
Rental values across all main streets remained stable or witnessed marginal increase except Karol Bagh, where it had soared by 24 per cent over the last quarter, it added.
“The increase witnessed in Karol Bagh was due to the opportunity provided to existing shopkeepers to realise higher rentals through lifestyle retailers who were keen to establish a presence in the micro-market,” C&W opined.
However, it said the average mall rentals remained stable across all micro-markets in the NCR as most of these projects had been in leasing for a few years now resulting the current leasing activity limited.
In the last one year, though there has been no decline in retail rentals on the NCR’s prime streets, but the same in the malls of West Delhi has seen a depreciation of 4 per cent, the consultant observed.
“The second quarter witnessed mall supply of about 6,25,000 sq ft against four million sq ft of projected supply for the same period. Majority of the developments have been postponed to the next two quarters, which are currently under fit-outs or installation of services,” the report said.
Apart from the lifestyle malls, the market is also seeing second generation specialty mall developments that are aimed at niche segment, it added.
The consultant estimated that about 5.8 million sq ft of supply would occur during the second half of the year.
“The South Delhi locations of Vasant Kunj and Saket are likely to witness most of the supply during the second half of the year with about 2.1 million sq ft, followed by Greater Noida with 1.38 million sq ft,” it said, adding that the future supply in South Delhi was planned for premium and luxury segments.
Mall rentals are expected to stabilise across most of micro-markets as most of the quality supply, likely to enter the market, has already been pre-leased, it viewed.
“...The high price points attained will limit further appreciation in the near future. Leasing in prominent main streets is likely to be subdued in the short run, subject to availability of desired space by retailers,” it added.
