Sucheta Dalal :Office rents are falling in Tier I cities
Sucheta Dalal

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Office rents are falling in Tier I cities  

November 25, 2009

After witnessing astronomically high premiums, office rents in central business districts (CBDs) of all major Tier I cities are falling and there are some offices available on rent for as low as Rs20 per sq ft, said property dealers.

“The total market revival across the key real estate market, marked by increasing absorption and reducing vacancy is likely to be achieved by the second quarter of FY10 for most Indian cities,” said Anshul Jain, chief executive, DTZ International Property.

The supply in the office space arena is increasing and the demand is suppressed. The slowdown has also contributed to the availability of office space as companies started retrenching staff and reorganising their resources, resulting in additional office space being available with such firms.

According to a report by DTZ, the CBD in Delhi, including the National Capital Region (NCR), has around 52 million sq ft (msf) of office space, out of which 41% is vacant. Similarly, in Mumbai’s CBD out of the total 48 msf, 29% is vacant, while in Bengaluru 23% out of 76 msf office space remains vacant. Kolkata has 13 msf office space, out of which 16% is vacant. Pune and Chennai, with an office space of 36 msf and 38 msf respectively, have the percentage of vacant space at 34% and 36% respectively, the report said.

Even the rates for many Information Technology (IT) parks have fallen drastically. “Old Mahabalipuram Road (OMR), the famous IT corridor in Chennai, quotes a lease rent of Rs20 per sq ft. The rates can’t go lower than this and also won’t increase in the next seven months,” said Sorabh K Jain, principal, Sun Apollo Real Estate Advisors Pvt Ltd.

According to industry sources, the IT Parks at OMR are leasing the space for ceremonies like marriages to earn some money till they can rent it to some tenant. The irony is, during the boom time in 2007, the same location used to attract rents as high as Rs7,500 per sq ft.

In Mumbai too, office rents have fallen and many institutions located at main business areas like Nariman Point are looking at shifting to other places where the rent is lower. Many of these institutions are planning to move to suburban areas instead of paying rents as high as Rs300 per sq ft for Nariman Point properties. Recently, SBI Life Insurance Ltd took about 50% office space in Andheri-based office complex Rustomjee Natraj for Rs80 per sq ft. Earlier, the same office complex developed by the Keystone group used to attract office rent of around Rs140 per sq ft.

Despite falling office rentals, some overseas property investors are planning to invest in these CBDs. Property investment and development group Hongkong Land Ltd, a $12 million company is planning to invest $500,000 in Tier I cities.
–Pallabika Ganguly [email protected]


-- Sucheta Dalal



 



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