Posted by: davidgarnerconsulting | September 7, 2009

Office Property in India Showing Signs of Recovery

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The office property market in key business districts in India is experiencing an increase in confidence with banks and financial services companies buying but the IT and ITeS sectors are yet to enter the growth spree as they are still depressed by the global economic downturn, according to analysts.

Delhi and Mumbai are seeing the most growth. For example, the Bandra Kurla Complex and Kalina districts of Mumbai saw overall vacancy levels rise to 29.4%, while vacancy levels in Noida in the National Capital Region hovered at around 40%, according to the CB Richard Ellis Asia Market View for the second quarter of 2009.

The report said the election of a new government and falling interest rates improved local business sentiment during the second quarter in India.

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But despite these small signs of improvement, cities like Mumbai, Delhi and Bangalore also witnessed a slide in office rentals due to businesses moving to alternative locations as a cost cutting measure and the retail sector is still negative.

‘While the second quarter of 2009 observed some improvement in the office-space market with levels of enquiries going up, vacancy levels continued to remain high, said Anshuman Magazine, CBRE Chairman and MD for South Asia.

‘The fall in capital values has encouraged more companies to explore and evaluate opportunities for buying rather than leasing the required office space,’ he added.

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The report concludes that overall the Asian market has started showing signs of stability in the second quarter of 2009 but companies remain focused on reducing costs and tightening their real estate expenditure.

It predicts that the markets are expected to remain soft in the short to medium term with landlords of buildings in secondary office destinations struggled with the consequences of speculative overbuilding. Landlords are having to increase incentives to recruit tenants.

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Suman Memani of Religare Securities said that the commercial market is now following the growth spurt of the residential sector but slowly.

His firm’s research shows that banks and financial services are leading the buying spree. But sectors like IT are still experiencing de-growth and is therefore the one looking for cheaper options. Retail is even worse with a negative outlook, he added. He added that improvements will be gradual as the economy gets back on track.

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