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Office space absorption sluggish in first three months of 2012: CBRE

Ravi Teja Sharma, New Delhi, The Economic Times

April 05, 2012


The first three months of 2012 have seen sluggish leasing of office space across key markets with only 4.1 million sq ft being absorbed, says property advisory firm CBRE South Asia.

The October-December 2011 quarter saw absorption of 6.5 million sq ft while the January-March quarter of 2011 saw 6.1 million sq ft being absorbed.

"A majority of the absorption observed during the last few months was completed by international firms. However, domestic companies continued to seek opportunities to acquire land for built to suit developments," said the CBRE report.

Absorption of office space is driven largely by the IT/ITeS sector but this quarter, IT and financial services companies leased space mostly for back office or took up smaller spaces as some of the larger deals were delayed at the approval stage.

"Preference for expansion in early 2011 has given way to consolidation," said the report.

"There has been a decline in absorption figures when compared to the same period last year. This is a clear indication of the global economic slowdown and a decline in India's GDP growth. This could also mean that there was a reduction in employment in the services industry," says Anshuman Magazine, chairman and managing director of CBRE South Asia.

Over 70% of the absorbed space during the quarter was in the national capital region, Mumbai, Chennai and Bangalore.

In this quarter, 5.9 million sq ft of new office space was added across cities because of which supply continued to overtake demand. Of the new supply, 90% was concentrated in NCR, Bangalore, Mumbai and Chennai. This accumulation of office stock in many micro-markets led to rentals coming under pressure this quarter. In the coming quarter, says CBRE, most leading markets are expected to see additional space coming in, increasing the gap between demand and supply and negatively impacting rentals.