Fall in Office and Commercial Space Demand in Mumbai

Published: May 26, 2011

Mumbai, India’s business capital, is witnessing a fall in demand for office and commercial space with transactions down by more than half since last year. Swanky office space in the heart of Mumbai, but it seems there are few takers. According to a Knight Frank India report, “office traction at a glance”, demand for commercial real estate is slowing. 0.88 million square feet of transactions were recorded in the fourth quarter (January to March) of FY11, versus the 2.81 million square feet transacted in Q4 of FY10—that’s a 68% drop in demand.

And even though sale transactions showed marginal improvement—from 13 to 23, the number of properties leased dropped from 54 to just 28 at the same time. Another consulting agency Cushman and Wakefield points to the high level of vacancy rate of 20%. Typically it is the BFSI and the IT and ITeS sectors that traditionally drive demand in the commercial real estate space. But throughout last year there was enough confusion about whether or not the STPI scheme will be extended and may have led corporates to withhold expansion plans. Also since the beginning of this year the market has been tainted by several scams and that has adversely impacted plans of several corporates.

But then again, industry experts say elsewhere in India, the stats are better. Real estate services major Jones Lang LaSalle says in 2011 demand for commercial real estate across the country is expected to be around 42 million square feet. “Clearly 2011 will be a pretty interesting year in terms of demand. The challenge on pricing will continue to stay. Reason for that is compared to the 42 million square feet demand, supply is coming in for 66 million square feet. So supply far exceeds demand so possible increase in demand is not going to be there,” Anuj Puri, chairman and country head at Jones Lang LaSalle, said.

And as the demand-supply mismatch continues, most developers have so far refrained from increasing rental values. But still, market sentiment continues to be subdued with players expecting large developers to reduce prices further.

Source: Indian Realty News

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