Vacancy rates in Indian commercial realty market rises to 20% in 2013

By Pooja Sarkar

  • 26 Nov 2013

Indian commercial real estate space is witnessing higher vacancies in Grade A office locations and flat or falling rentals across the country, a reflection of slow business activity in the country even as there are some green shoots in the economy.

Realty consultancy Knight Frank India said in a report that in the Asia Pacific region 10 of 19 office markets witnessed softening rents in the last quarter. Mumbai has seen office rent declines 4 per cent.

According to the report, the country is slated to add 44.1 million sq ft of commercial office space this year which will take the total stock of commercial realty in the country to 490.3 million sq ft. Last year only 39.2 million sq ft of new stock was added in the country.


As the total area coming in the market hits an all-time high, the vacancy in the office space segment has also hit around 20 per cent. In 2011 and 2012, the country had seen a vacancy level of 19 per cent in the office space.

Samantak  Das, chief economist and director, research and advisory services at Knight Frank, said, “Though vacancy has gone up for this year we anticipate that by 2017 the vacancy levels will recede to 17 per cent.”

According to a separate report authored by Adhidev Chattopadhyay, a research analyst with HDFC Securities, calendar year 2013 is expected to see lowest absorption of office space since 2005. For the first nine months of this year, overall net absorption of 15.7 million sq ft is down 21 per cent year on year due to weak economic sentiment impacting expansion plans of occupiers and substantial relocations of offices within cities.


After factoring absorption of nearly 7-8 million sq ft in Q4 CY13, estimated net absorption of 22-23 million sq ft is well below CY11 levels of around 36 million sq ft and last year’s 28 million sq ft. In 2005 the country saw absorption of 25 million sq ft.

According to another real estate consultancy, CB Richard Ellis, the commercial office segment of India’s top cities is expected to see fresh supply of more than 150 million sq ft by end-2017.

Mumbai office market, the biggest market for commercial realty in the country, has witnessed drop of 11 per cent in absorption on an year-on-year basis in the last quarter. In Q3 CY13, the city absorbed only 1.58 million sq ft but compared with last nine months; the city saw absorptions go up by 2 per cent compared with the same period in 2012.


Also rentals have seen a slight softening across the city as developers are pushing down prices to sign up lessees. In the last quarter rentals in central Mumbai-Lower Parel region saw a drop of Rs 10-20 per sq ft to Rs 155-165 per sq ft from earlier Rs 175 per sq ft. The same was witnessed for key commercial property areas Bandra Kurla Complex and Nariman Point.

Anshuman Magazine, chairman and managing director, CBRE South Asia Pvt  Ltd, said, “The period 2014–15 is likely to see the maximum share of this upcoming supply, since projects slated for a release during this period are both spillovers of pent-up supply from 2013–14, as well as planned projects already under-construction. With a considerable level of supply lined up for 2014–15, rental values of select micro-markets such as  Gurgaon, Outer Ring Road, Thane and Navi Mumbai are likely to remain under pressure.”

(Edited by Joby Puthuparampil Johnson)


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