Office rentals stabilize

Office rentals, which dropped 40% from their peak in the middle of 2008, stabilized across the country in the September quarter as fresh bookings for office spaces partly reduced inventories, says a report by international property consultant CB Richard Ellis.

There was no change in office rentals in some of the major office locations in the national capital region, Mumbai, Bangalore, Hyderabad and Kolkata, while rentals at some others in Chennai and Pune fell by 5-6% in the quarter ended June 30. In contrast, rentals in Connaught Place in Delhi and Gurgaon in Haryana registered an increase of 5-8% in the last quarter.

“The increase in demand is largely due to improving economic conditions, positive market sentiment and growing corporate confidence. However, it will take some time for the supply-demand gap to get bridged. Thus, both rentals and capital values are expected to remain stagnant or under downward pressure in the medium term,” said Anshuman Magazine, chairman and managing director for South Asia at CB Richard Ellis.

In Mumbai, commercial office space is seeing a slight pick up in demand but rentals continue to be competitive. The September quarter saw close to 95,000 square feet of cumulative lease transactions as compared to 83,000 square feet space being rented in June 2009 quarter, according to the report.

However, as Mumbai continues to be 15th largest office construction site in the world with about 3.5 million square feet of office space coming up in extended business districts (EBD), capital values will remain low. This has resulted in a few unexpected transactions of outright purchase. Recently, Motilal Oswal, a brokerage firm purchased 90,000 sq feet office building for Rs 156 crore. Constructed by K Raheja, the property was purchased at Rs 17,333 per square feet as against the ongoing rate of Rs 19,000-21,000 per square feet.

“Indian corporates firmly believe that current valuation of commercial property is attractive, so they are capitalising on it rather than leasing as is being opted by MNCs,” said Sanjay Dutt, CEO (business), JLLM, an independent property consultant.

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