The commercial real estate market is facing a
tough time, with office space absorption across India’s seven largest
cities dropping 12% quarter-on-quarter in the January-March period due
to uncertain economic conditions coupled with the eurozone crisis.
The trend is likely to continue for the next few quarters, with the
absorption rate expected to drop by 10-15% in 2012 due to lower demand
from the information technology sector. Demand from IT/ITeS sector
dropped from the peak of 68% in 2005 to 35% at present due to increasing
cost pressures faced by these firms.
Growth expectations of India’s IT sector have been lukewarm so far,
with software services exporters complaining of clients’ delay in
deciding on the technology spend. Compared to around 16% growth in year
to March 2012, trade body Nasscom has forecast an 11-14% growth rate for
the year to March 2013.
“Things are not as rosy as they were in 2010. Most corporates are
adopting a ‘wait-andwatch’ policy. The majority of demand in the first
half of 2012 was spillover of work-in-progress deals from 2011. The
demand thereafter will be influenced by the Indian economic performance
and outlook of global markets,” says Rohit Kumar, head of research, DTZ
India, a real estate consultancy firm.
Total commercial office space absorption for Q1 of this year was 7.4
million sqft, representing a decrease of 12% quarter-on-quarter and 15%
year-on-year. Vacancies across cities are expected to rise in 2013,
except Bangalore, said a recent report by DTZ India.
Currently, demand for Grade-A office space is driven by foreign
companies from the US and European Union, which contribute a lion’s
share of lease transactions across major cities in the country. Demand
for office space from the US-based companies has been stagnant. These
companies have been contributing 48% of the total office space demand in
the country, followed by Indian and European countries.
Larger IT firms such as Infosys and Wipro have projected negative to
flattish growth in June-ending quarter, and analysts expect at least
another 1-2 quarters before the sector hits the growth track, depending
on the recovery in the US and Europe.
“There has been no escalation in realty budget as companies look to
reduce operating costs. The IT/ITeS firms have reduced their real estate
budget by 5-8% this year as they wait for renewal of contract from
clients before they can take additional floor space,” says Sridhar
Raghavendra, founder of FM Zone India, a real estate and facility
management firm representing IT/ITeS firms.
Some of the companies, which are looking to occupy large space but
yet to sign deals, are Juniper Networks ( 5,00,000 – 7,00,000 sqft),
Intel (1,20,000 sqft), Cyprus (2,00,000 sqft), Volvo (7,00,000 sqft) and
Eurospace (3,00,000 – 5,00,000 sqft).
“There are some larger commercial space requirements floating in the
market, but no deals have concluded so far. Decision making by
corporates has slowed down since fourth quarter of the last year.
Companies are also staggering occupancy timeline and do not want to
occupy large space at one go,” said Naveen Nandwani, director of
property consultancy Cushman & Wakefield, Bangalore.
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