Oversupply to bring down commercial rentals 15%
While Kolkata is expected to be 66% surplus, Bangalore will have 38% more supply than demand, and Hyderabad, 33%. In Delhi NCR, it is expected to be at 20%, among the lowest. Mumbai is the only exception with the demand projected to exceed supply by 8%, according to global property advisers DTZ.
Grade A leasehold office space across most cities is seeing the beginning of an oversupply situation that will continue in the short to medium-term, even though demand continues to be strong. Property experts opine that the first casualty would be rentals which could drop as much as 15% in the next few months.
"Our city-level demand supply analysis, seen in conjunction with the macro-economic fundamentals, clearly indicates that office space rentals are likely to hit a plateau in the next six to twelve months. Barring a few exceptions (primarily the central business districts), the oversupply situation will lead to a correction in office rental values. Or, very simply, this correction in Grade A office space rental values will not be driven by a lack of demand but due to an oversupply build-up,” says Ankur Srivastava, managing director, DTZ India.
For instance, the estimated supply of office space in 2007 in Delhi NCR is expected to be around 15.9 million sq ft (as against 10.6 million sq ft in 2006) with the estimated absorption being pegged at 13.2 million sq ft, resulting in a 20% excess supply. Bangalore is estimated to have 18.3 million sq ft of commercial space in 2007 (as against 12 million sq ft in 2006) with the absorption estimated at 13.3 million sq ft. This works out to 38% of excess supply in the city this year.
Chennai is expected to have the largest supply of commercial space this year at 19.5 million sq ft (which was only 5.3 million sq ft in 2006) with the estimated absorption pegged at only 6.5 million sq ft, resulting in an excess supply of a whopping 200%. Same is the case with Pune, which is estimated to have a supply to the tune of 17.9 million sq ft while demand could be just 5.8 million sq ft.
Room to let
• Pune leads the race in commercial realty with oversupply of 208% by the end of 2007, followed closely by Chennai at 200%
• Mumbai is the only exception with the demand projected toexceed supply by 8%Kolkata with an estimated supply of 8.3 million sq ft (3.9 million sq ft in 2006) and an absorption of 5 million sq ft will have an excess of 66%. Hyderabad, on the other hand, is estimated to have a supply of 6.1 million sq ft (3.8 million sq ft in 2006) and an absorption of 4.6 million sq ft, resulting in an excess of 33%.
Mumbai is the only city, which is expected to be in the negative as far as oversupply is concerned. With its estimated supply pegged at 6.9 million sq ft (6.4 million sq ft in 2006), the absorption is estimated at 7.5 million sq ft.
Says Srivastava, “As demand continues at the current pace and fresh supply tapers off, it is expected that the oversupply position will reduce over the longer term. In the short to medium-term, however, as an oversupply position emerges across most metros, stakeholders like occupiers, investors, developers and intermediaries need to understand the implications and formulate their strategies accordingly.”
