Oversupply in commercial real estate likely to continue in 2009: Cushman & Wakefield

The over-supply scenario that 2008 had witnessed in the commercial real estate space could well continue in 2009, says the annual year-end report by Cushman & Wakefield, real estate services firm.

While some companies, which had committed to larger spaces earlier, have scaled down their absorption as a prudent step to mitigate the cost on real estate others, which had taken up space based on anticipated expansion plans, are considering sub-leasing the excess space.

“With this trend continuing in the coming year, coupled with the additional proposed supply and the already existing increasing vacancy levels, the over supply situation is likely to see no early respite. Hence, rental corrections across micro-markets seem probable over the short term,” said Kaustuv Roy, director (tenant strategies and solutions), Cushman & Wakefield.

The south, central and select suburban locations of Mumbai witnessed rental correction over the year and more recently, Thane Belapur Road (IT) and Malad (non-IT) too recorded a southward movement. Vashi and the non IT-projects in Thane Belapur Road recorded a stable trend. Central and suburban locations of Lower Parel, Bandra-Kurla, Andheri and Powai are likely to witness a further fall in rentals with all other major markets expected to stabilise.

In Bangalore, the rental market continued to strengthen recording 4-9 per cent annual appreciation in the peripheral locations and nearly 18 per cent year-on-year growth in the CBD and off-CBD regions. Outer Ring Road and the suburban areas are likely to strengthen further in the coming months, whereas ITPB, Whitefield and Electronics City are expected to stabilise, the report said.

Chennai witnessed a drop of 5-10 per cent in rentals in the in the CBD and off-CBD locations of T. Nagar, Alwarpet, Anna Salai and Radhakrishnan Salai, while the suburban and peripheral regions witnessed a 7-9 per cent drop.

Rajiv Gandhi Salai in the peripheries is the only market in the city that has begun to show signs of stabilisation and is likely to continue with the trend as all other major micro markets are anticipated to record a further fall in rentals, the report added.

In Hyderabad, the CBD, off-CBD regions such as Banjara Hills, Begumpet, Raj Bhavan Road, SP Road and the peripheral regions of Pocharam and Shamshabad recorded a 6-19 per cent annual appreciation in rentals, while the suburban regions of Madhapur, Gachibowli-Nanakramguda, Manikonda and Raidurga witnessed a 5 per cent fall. Banjara Hills, Jubilee Hills, Bachupally and Uppal have also recorded a fall in rental values.

Rentals in the National Capital Region dropped between 1 and 13 per cent from last year across micro markets, with Noida (IT SEZ) recording about 32 per cent annual depreciation. Over the last quarter, rentals recorded 6-16 per cent dip with the likelihood of a further correction in the months to come.

Though rentals in Pune seem to have appreciated over the last year, the last two quarters recorded a 4-10 per cent dip across locations with the exception of Sholapur Road and Hinjewadi in the peripheries that remained stable and are expected to continue remaining so. All other major micro markets in the city are likely to witness a fall in rentals over the short term.