Mumbai: Prices of commercial properties across all major Indian cities have peaked and are set to fall in the next quarter, says a new report released by real estate advisory firm, DTZ India.
The report tracked price curves in the sector over the last quarter and
concluded that in all major cities, except Mumbai where demand continues to outpace supply, the market is headed south as supply is expected to overshoot demand.
No takers: DTZ India’s report says overall absorption of commercial space in New Delhi has gone down to 0.81 million sq. ft in the April-June quarter, compared with 1.5 million sq. ft in the January-March one.
The report covers seven cities: New Delhi, Mumbai, Hyderabad, Chennai, Bangalore, Pune and Kolkata.
Ankur Srivastava, managing director, DTZ India, said: “We foresee a fall in the prices of commercial properties in all the major Indian cities except Mumbai, where demand is still building up. Cities such as Pune and Bangalore are already experiencing a softening in demand. This is likely to happen in cities such as Hyderabad and Chennai, too. We see these markets as saturated,” he added.
Ramesh Jogani of Indiareits, the real estate fund floated by the Ajay Piramal group, added: “I think cities such as Bangalore and Chennai are close to a softening in prices, mainly on account of oversupply, although I don’t think Mumbai and Pune will see a price correction as there is still a lot of demand coming up.”
In a report earlier this year, DTZ had warned that commercial properties across the country would see an oversupply situation in the short-to-medium term. “Office space rentals are likely to hit a plateau in the next 6-12 months… this correction will be driven not by lack of demand, but by an oversupply build-up,” the May report had warned.
However, Mridul Upreti, head of capital markets at Jones Lang LaSalle Meghraj, a real estate consultant firm, did not see corrections except in small pockets such as Whitefield near Bangalore. “Overall, there has been a rise in rentals across cities such as New Delhi and Mumbai,” he said. “Also, capital values have risen as yields have risen on the back of rising interest rates.”
DTZ’s latest report says that in New Delhi, for instance, overall absorption of commercial space has gone down to 0.81 million sq. ft in the April-June quarter, compared with 1.5 million sq. ft in the January-March one. Growth in rentals has also slowed down from 15% in the January-March quarter to 5-7% in the April-June one. Bangalore saw vacancy levels of around 35% in newer business areas such as Whitefield, owing to excess supply.
Hyderabad, too, is likely to see an oversupply as 7.1 million sq. ft is expected to come into the market, while demand is pegged at 4.6 million sq. ft for 2007.
“Minor corrections in rentals in peripheral areas such as Madhapur and Gachibowli might be witnessed owing to new supply coming up in the region,” the report said.
It said that Pune was already reporting high vacancy levels in the newer business districts of Viman Nagar, Kalyani Nagar, Hadpsar and Magrapatta, and rentals remained constant quarter-on-quarter.
Chennai saw a total addition in supply of 3.4 million sq. ft, while only 0.4 million sq. ft was absorbed. The vacancy levels in the city are in the region of 9-10% and are expected to increase in the near future as supply increases.
Mumbai, on the other hand, is expected to see prices rising as the demand-supply gap in the city is still around 8%. As a result, rentals have increased between 8-16%, with average rentals in Nariman Point in the range of Rs300-350 per sq. ft per month, while rents in the Bandra-Kurla complex ranged around Rs275-350 per sq. ft.
Rents are expected to continue their upward drive in 2007 and see a stabilization only in the first half of 2008.