Reuters

Mumbai: A growing oversupply of quality office space in major Indian cities apart from Mumbai will lead to a plateau in rentals and then a correction even though demand will remain healthy, real estate consultants DTZ said on Monday.

A-grade leasehold office markets were at all-time highs in terms of rentals and space leased, and a correction, when it happened, would force builders, private equity and venture investors to re-evaluate their investment strategies, DTZ said.

“Barring a few exceptions (primarily the CBDs), the oversupply situation will lead to a correction in office rental values,” Ankur Srivastava, the managing director of DTZ India, said in a statement.

Of seven cities covered by the study, only Mumbai, India’s financial capital, still had a shortage of office space, while oversupply was greatest in the southern city of Chennai and the western city of Pune.

“The threshold for this correction has been brought closer by the two recent interest rate hikes,” the report said.

India’s central bank has raised benchmark rates 5 times in less than a year to contain inflationary pressures and increased reserve requirements for banks, leading to a sharp rise in banks’ lending rates.

Higher interest rates were slowing demand for property, DTZ said.

“This phenomenon is already visible and leads to lower project and land valuations,” the report said. “Project break-even periods are also likely to get extended.”

An estimated $10 billion (Rs40,950 crore) was raised internationally last year for Indian property, which is drawing the property investment arms of Morgan Stanley, Citigroup and American International Group.

The study covered Mumbai, New Delhi, Bangalore, Chennai, Pune Kolkata and Hyderabad.