Mumbais commercial real estate market seems to be on the upswing after a prolonged lull. However,reports suggest that due to oversupply in the market,rentals will continue to remain subdued for a while.
According to a report by property consultants Knight Frank,office absorption in January-March 2012 grew by 23 per cent as compared to the same period in 2011.
The total transaction of office space,both sale and lease,in Mumbai from January to March this year has been 1.04 million sq ft as compared to 0.88 million sq.ft in the corresponding period last year.
Despite increasing number of transactions,both rentals and capital prices have dropped over the last one year.
The average monthly rental at which commercial space was leased in Mumbai in the first three months this year was Rs 111 per sq ft as compared to Rs 120 per sq ft in the first three months of 2011. Similarly average sale price of commercial property fell from Rs 15,409 per sq ft to Rs 8.087 per sq ft between January-March of 2011 and 2012.
The growing absorption numbers are yet to overtake existing supply overhang causing the demand-supply gap to widen over the past year and consequently causing rent and vacancy levels to remain under pressure, the report points out.
It states that while the Banking,Financial Services and Insurance (BFSI) sector has been the primary driver of office-space market in Mumbai,office-space transactions in IT/ ITES sector has been reduced by half due to the ongoing debt crisis that has led to expansion of this sector being put on hold.
Another recent report released by Jones Lang LaSalle states that Grade A office rents in Mumbai are expected to grow just marginally by one or two percent in the second quarter of this year.
According to Anuj Puri,Country Head for JLL,developers will refrain from raising rentals with a view to boost transactions at a time when the vacancy rates are high.
With the Indian economys cues not being very encouraging,office occupiers continue to defer expansion plans across major Indian cities. Given the pressure,we expect rentals to remain stable for most micro-markets. Mumbai and Delhi are expected to add significant office supply over the next six quarters,and we have started seeing increasing signs of delayed construction, said Puri.