The economic downturn has subdued demand for commercial real estate and is likely to remain the same in the medium term as corporates continue to be in a consolidation mode while excess supply may put pressure on capital and rental values, according to property consultant CBRE.
“The economic downturn has subdued office and retail markets that has affected sales and put pressure on capital values as well across major cities,” said CBRE South Asia Chairman and Managing Director Anshuman Magazine.
In residential segment, he said, the buyer sentiments have remained largely cautious due to relatively high price points and sticky borrowing costs, amid an uncertain economic climate.
But Supertech CMD RK Arora has different take on the same and told The Pioneer “Optimal space utilisation is a routine exercise undertaken by every business establishment to control expenditure and it cannot be attributed to any depression in commercial real estate.”
He said, “the report also did not consider the depreciation of Rupee and the resultant gains by IT and BPO Industry and the positive impact thereof in the real estate.”
“The demand for commercial real estate remained unaffected and would, in fact, accelerate with the improvement in the economy he added.”
Magazine was also of the view that supply backlogs could exert pressure on rental and capital values as well.
He, however, mentioned that recent indications of revival in the global and domestic economy should contribute to better performance and improved economic prospects towards H2 2014.
In the office space segment, CBRE said the demand declined during the third quarter of 2013, because corporates focussed on consolidating and downsizing their space portfolios, and/or relocating to peripheral markets.
Office space absorption in the top seven cities fell by about 14 per cent in July-September of 2013 at over 6 million sq ft compared to over 7 million sq ft in previous quarter.
Absorption of prime office space in full 2012 calendar year of top seven cities stood at over 25 million sq ft, while total absorption is over 19 million sq ft in the first three quarters of 2013, according to CBRE.
While subdued demand and high vacancy levels have led to rental stability in most markets in recent months, CBRE said weak absorption numbers has resulted in a decline in office space supply over previous quarters, weighing in on future investment plan.