High Vacancy Levels Pose Problems for Asian Office Space Market

Floors of office space in key business districts of Delhi and Mumbai are awaiting occupants, although rentals have gone down and business confidence is said to have returned, according to a study that tracks Asian market. “The Bandra Kurla Complex and Kalina districts of Mumbai, for example, saw overall vacancy levels rise to 29.4 per cent, while vacancy levels in Noida in the National Capital Region hovered at around 40 per cent,” real estate consultancy CB Richard Ellis (CBRE) said in its Asia Market View Q2-2009. The report said the election of a new government and falling interest rates improved local business sentiment during the second quarter in India.
However, despite small signs of improvement, cities like Mumbai, Delhi and Bangalore witnessed a slide in office rentals due to an exodus of occupants from the CBDs as corporates moved to alternative locations as a cost cutting measure. “While the second quarter of 2009 observed some improvement in the office-space market with levels of enquiries going up, vacancy levels continued to remain high.” CBRE Chairman and MD (South Asia) Anshuman Magazine said. “The fall in capital values has encouraged more companies to explore and evaluate opportunities for buying rather than leasing the required office space,” he added. He said there is an improved level of activity in the sector but the markets are expected to remain soft in the short to medium term.
“Although the rise in demand for less costly premises bolstered office sub-markets outside the CBD, landlords of buildings in secondary office destinations struggled with the consequences of speculative overbuilding and were forced to increase incentives to recruit tenants,” the report said, adding, that this led to the rise in level of vacancy. CBRE said the overall Asian market has started showing signs of stability in the second quarter of 2009 but companies remain focused on reducing costs and tightening their real estate expenditures. “Most Asian cities either recorded a smaller negative net absorption or a mild increase in office requirements. Overall vacancy for Asian cities rose 60 basic points quarter-on-quarter to 12.5 per cent in the second quarter, but the rate of increase slowed from 120 basic points in the previous quarter,” it said.
Overall, the Asian leasing markets were sluggish during Q2 and office rents remained caught in the down cycle. “Overall office rents in Asia fell 6.7 per cent in the second quarter, decelerating slightly from the 8.1 per cent decline witnessed in the previous quarter as most cities underwent a milder rate of rental reduction,” it said.
Ref:http://www.indianrealtynews.com/real-estate-india/high-vacancy-levels-pose-problems-for-asian-office-space-market.html