Less than 3 million sq.ft of office space entered India’s prime real estate market in the quarter ending September 2013 — dropping by more than 75 per cent q-o-q over last quarter’s 10 million sq ft of fresh office space supply; and by nearly 50 per cent over the same period last year. Delayed deliveries from previous quarters, along with new projects coming on-stream, had led to an increase of upto 8 per cent q-o-q and about 16 per cent y-o-y in office supply addition in the previous April–June period; but the July–September period, however, witnessed the lowest addition of office space over the past several quarters, according to a report, “India Office Market View report for the third quarter of this year”.
Mumbai led these project completions 36 per cent, followed by Hyderabad 27 per cent, Bangalore 14 per cent and Delhi NCR 12 per cent — representing about 88 per cent of the entire office space added during the third quarter of 2013. Despite leading the total space addition to India’s existing office stock in Q3-2013, Mumbai’s office supply for the quarter actually declined by more than 50 per cent q-o-q over the previous quarter. Bangalore, in fact, experienced the steepest decline in office space addition in the third quarter, falling by approximately 90 per cent q-o-q over Q2-2013, and by 65 per cent y-o-y over the same period last year. Delhi NCR accounted for just about 12 per cent of the total supply addition; declining by nearly 80 per cent q-o-q over Q2-2013, and by over 80 per cent y-o-y over Q3-2012.
This rationalisation of office space supply across the top urban centres of the country has been largely attributable to the prevailing high vacancy pressures in completed projects and poor commitment levels for under-construction properties. More than 10 million sq ft and nearly 9 million sq ft of fresh office space had entered the Mumbai and Bangalore markets, respectively, over the last four quarters. Amid a backdrop of subdued demand, double-digit vacancy rates and poor commitment levels for under-construction buildings—it is understandable that the top three cities witnessed an average office space supply addition of about 0.53 million sq ft in the third quarter of 2013.
Corporate occupier focus had shifted to consolidation or relocation and more efficient use of their existing real estate portfolio over the past year — a trend which has continued to the present quarter, and is likely to continue in the medium-term.
According to the report, owing to a slowdown in construction activity, pent up supply has been lined up across various micro-markets for release over the next six to nine months, which might result in pressures on asset pricing. — (The author is CMD, CBRE South Asia Pvt. Ltd)