Uncertainty in global and domestic economic scenario has hit office space leasing as corporates remained cautious on expansion leading to a fall in absorption of office space by 26% during 2012, global property consultant CBRE said today.
The total absorption of prime office space for 2012 was about 26 million sq ft in seven major cities of the country as against 35 million sq ft in 2011, according to CBRE's latest report 'India Office Market View Q4, 2012'. These cities are NCR, Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata.
The decline in absorption across key cities is primarily due to the continuing global and domestic uncertainty in the economy which is a deterrent for corporates in their expansion plans," CBRE (South Asia) Chairman and Managing Director Anshuman Magazine said in a statement.
For revival of demand of office space, Magazine felt that the economic reforms in India need to be fast tracked besides global economy has to show some improvement in growth.
The last quarter of 2012 (October to December) witnessed absorption of about 7 million sq ft of office space compared with about 6 million sq ft in the previous quarter. About 70% of the transaction activity was dominated by the NCR (National Capital Region), Mumbai and Bangalore.
"Concerns over cost reduction and a cautious approach by occupiers had a negative impact on leasing activity across key markets in India," the consultant said, adding that major corporates continued to review expansion plans and focused on improving existing space utilisation to control costs.
The total office space supply in 2012 was about 31 million sq ft compared to about 30 million sq ft in the previous year, despite the fact that a large chunk of the office pipeline lined up for the year was delayed into 2013, CBRE said.
Rental values remained largely stable across most micro markets, the report noted.
"Rents were stable in suburban office markets such as Gurgaon, Noida, Outer Ring Road, Whitefield, Hitec City and Gachibowli, amongst others," the consultant said.
Most micro markets in Mumbai entered the downward cycle with the likes of Nariman Point, Bandra Kurla Complex and peripheral markets suffering from sluggish demand and increasing vacancy levels.
The consultant anticipates that downward pressures would continue to persist on most markets in the country in a short to medium term.