Slide in average office rents slows to 8.3%

Written by Mona Mehta | Mumbai | Updated: Aug 20 2009, 06:30am hrs
The Rs 10,000-crore real estate sector is witnessing a 8.3% decline in average office rents nationally. Compared to a 18.8% fall witnessed in the first quarter of this fiscal, the trend indicates a slower decline in the second quarter till now. This is according to a recent research report, State of the Office Sector, from Jones Lang LaSalle Meghraj (JLLM) on office rentals.

As per the report, Hyderabad is the only city where rentals during the second quarter are witnessing a fall at a rate of 10.4%, which is more than the previous quarter. In Mumbai, office rentals dipped 9.2% in Q2 of 2009-10 compared to a steep 23.5% during the Q1. In Delhi, decline in rentals grew at 8.6% during the second quarter against 23.6% during Q1. Punes average rentals, which fell rapidly in the last two quarters, are witnessing a decline of 4.2% only.

According to Abhishek Kiran Gupta, head-research, Jones Lang LaSalle Meghraj (JLLM), The reason for this slow decline can be found in various factors that have shaped the Indian economy in the last six months. These are: increased liquidity due to fiscal measures by the government, rise of the Sensex by 4,536 points in the first six months of 2009, strengthened political stability and green shoots in affordable segment of the residential sector. The confluence of these factors, with the gradual revival of opportunistic demand, has resulted in strengthening of absorption rates.

Industry experts believe that the first half of 2009 witnessed absorption of about 6 million sqft of Grade A office space in India. "Sunshine sectors like telecom and pharmaceuticals have picked up large spaces in several cities. The demand for office space has been progressively increasing and is expected to grow further in the next six months on the account of opportunistic tenants looking for options to lock-in at affordable rents. We expect a total absorption of 22 million sqft of office space in 2009. Financial services, IT-enabled services, telecom and domestic companies from across the business spectrum are seeking to expand while valuations are rational," Gupta added.

Navin Raheja, managing director, Raheja Developers, said: "We at Raheja Developers have given our retail space mainly on revenue sharing basis. All our agreements with the tenants for office space are firm and have a specified lock-in period. We have not come across any situation of re-negotiating rentals for our office space. We expect that in financial year 2009-10, rentals may not go up. There will not be any further decline in rentals. Marginal growth, say, 5-10% is possible."