REALity Bites

It’s the same with Connaught Place in New Delhi, Anna Salai in Chennai, and MG Road in Bangalore. This year, even as an upbeat economy poured money into corporate coffers, it wasn’t enough to send them shopping for prime real estate.

Property rates continued to decline in 2003-04 in prime commercial properties, called ‘Central Business Districts (CBD), in Mumbai, Delhi, Chennai and Bangalore. But offices in these areas continue to remain empty with vacancy rates ranging from 15 pc in Bangalore, to near 30 pc in Mumbai and Delhi.

‘‘Economic growth has brought about some interest in these prime properties but not enough to change the market,’’ says Tariq Vaidya, head, Advisory Services & Asia Pacific Research, Knight Frank. ‘‘That’s because whoever is buying here wants only 2000-3000 sq ft. Whereas IT-enabled service sectors (ITES), which are the main drivers of real estate in the country today, are looking at 20-30,000 sq ft.’’

Experts say prices in prime commercial properties should stagnate at these levels and not go down further. The key reason being a drop in prices.

‘‘When some building owners in Mumbai’s Nariman Point dropped their prices in 2000-2002, there wasn’t any increase in demand,’’ explains Vaidya.

A Cushman Wakefield report released this week revealed that prices in prime areas continued their downward movement in 2003-04, though only marginally. According to the report, there was a 7 pc decline in prices at MG Road, Bangalore, in the last one year, and a 14 pc decline in South Delhi in the last six months.

Meanwhile, demand for commercial property in suburban areas was at a high last year, as it grew by 25-30 per cent, informs Uday Mathur, head, Chesterton Meghraj Property Consultants.

‘‘Suburbs are a cheaper option, where at the same price, twice the space can be availed,’’ explains Mathur. Gurgaon and Noida near Delhi; Malad, Powai and Andheri (East) in Mumbai and Whitefield and Hosur Road on the outskirts of Bangalore have been hot favourites for the IT, ITES and BPO companies.

It is estimated that these companies account for nearly 80 pc of the commercial real estate demand in the country. In fact, the total space taken up by this sector is set to cross 20 million sq ft in 2004, according to a recent report by real estate consulting firm CB Richard Ellis. This is 54 pc higher than the initially estimated space take-up. At the same time, high demand has not resulted into higher suburban prices. Experts say the construction of Crossroads mall in Nariman Point and the Metro rail in Connaught Place may revive some activity, but cannot regain their former glory.