May 05, 2007

Commercial property rent to fall in major cities

A report by international property consultant, DTZ reveals that most major cities in India will witness a fall in commercial property rentals, reports CNBC-TV18. In the past two years, companies have had to curb their expansion plans owing to rising real estate costs. Now, a report by international property consultancy DTZ predicts an oversupply in the commercial property segment in the next one year. The report says that Pune and Chennai will be the cities leading the list with an expected oversupply of 68% and 66% respectively. The report predicts an oversupply in all major cities, except Mumbai, where demand will continue to exceed supply by 9%. Experts say, this may cause rentals in certain pockets to fall by up to 25%. Balaji Rao, Managing Director, Starwood Capital India Advisors said, “I think in Pune, it will be quite choppy in some IT known areas like Hinjewadi or Baner. You will see this happening in Bangalore in the Whitefield area. I feel a bit of it will happen in the OMR area, just the Old Mahabalipuram Road. I see there is a lot of supply that will suddenly come up in the next one-two years and there won't be enough demand off take to absorb this. This will result in prices becoming softer and properties taking a longer time to completely lease out.” According to the report, most of the anticipated supply will be in the IT/ITES segment. The seemingly insatiable demand from the IT sector led developers to go on an overdrive and build more space than was required. More supply will hit the market when SEZs finally take off and this may put pressure on developers of non SEZ IT space. Kishore Gotety, Dir-Real Estate Investment, ICICI Venture, said, “We are expecting that you will have to negotiate harder to get your non SEZ space leased out. We don't expect vacancy to prevail but rates will definitely be under pressure. But this oversupply situation may not be as drastic as it seems. Experts say only half of these projects will see the light of day and most of this supply will be built to suit. They expect the rest to be absorbed over the next few years.