Demand for office space drops in metros

Office space demand slowed down in the first quarter of 2012, with around 4.1 million sq ft getting absorbed across the leading cities in the country.

In the previous quarter (Oct-Dec 2011), almost 6.5 million sq ft was absorbed, according to the India Office report released by CBRE on Thursday. NCR (National Capital Region), Mumbai, Chennai and Bangalore were the leading cities accounting for more than 70% of the entire space getting absorbed in the country.

Supply continued to overtake demand in the first quarter of 2012, almost 5.9 million sq ft of office space was added in leading cities. The new supply was largely concentrated in NCR, Bangalore, Mumbai and Chennai, comprising almost 90% of the entire quantum of the present quarter.

The report said Mumbai witnessed decline in rental values at Nariman Point and Lower Parel, mainly due to sluggish demand levels. Average rentals in Grade A buildings in Nariman Point dropped from Rs 300 a sqft a month in December last to Rs 290 in March.In Lower Parel, it reduced from Rs 155 to Rs 150 in the period. “It is anticipated that supply dynamics will continue to dictate rental movement in coming quarters, with values in the CBD being stable and those in suburbs slipping,” it said.

Nariman Point has limited transactions with only a marginal absorption of around 10,000 sq ft. “It did not witness the addition of any fresh supply in the present quarter and vacancy remained stable. In coming few quarters, vacancy in this micro-market is slated for rise from the current estimated 6-7%,” said the report.

A marginal decline was seen in rental values during the quarter. Around 2 lakh sq ft of Grade-A office space became available in the Extended Business District (EBD) of Lower Parel. Worli and Prabhadevi saw a marginal correction of 1-3% in rental values. “The decline was largely due to low levels of transactions…,” it said.

BKC continued to remain a preferred location for corporate occupiers looking for expansion. The CBRE report also observed limited leasing activity in the Secondary Business District (SBD) of Andheri, Vile Parle and Jogeshwari.