IT AND BPO COMPANIES ABSORB MOST OF THE TOTAL COMMERCIAL OFFICE SPACE

Despite sluggishness in demand for residential property, the commercial office space segment is continuing to spur growth, backed by strong demand for high quality real estate by both Indian and multinational companies.

"As the economy is doing pretty well, almost all companies are vying for good commercial space to expand operations. This is why the demand is pretty high in this segment," said real estate consultant Sunil Bajaj.

According to him there is a good demand for commercial office space property allover the nation. "In Mumbai the office space rentals in the Bandra-Kurla Complex (BKC), Navi Mumbai have gone up by 25 to 30 per cent over last year and the demand is increasing," said Bajaj. In Pune too, the rentals have climbed steadily to Rs 50 to Rs 80 per sq ft.

Consultancy firm Ernst & Young in one of its recent reports on Indian real estate stated that continuing the past trend, the commercial real estate segment witnessed a dominance of IT/ITeS- accounting for nearly 70 to 75 per cent of the total commercial office space absorption.

This is followed by banking, financial services, insurance, pharmaceutical and telecom companies in most cities. "Mumbai witnessed more diversified absorption with Banking, Financial Services, Insurance and Telecom contributing evenly," the report said.

According to this report, the total supply of commercial office space in the National Capital Region, Mumbai, Hyderabad, Bangalore, Pune and Chennai together was recorded in the range of 40-45 million sq ft.

"Cities like Bangalore witnessed highest ever absorption in their histories. Rentals and capital value of Grade-A commercial space witnessed steady appreciation in most parts of the country, highest appreciation for most cities was witnessed in the last quarter of 2006," the report said.

Due to limited supply in the existing central business districts of cities, rentals in secondary business districts are witnessing high appreciation in rentals and capital value, for example, Nehru Place and Saket in Delhi and Bandra Kurla Complex in Mumbai.

According to analysts IT/ITeS companies currently hard pressed with declining earnings due to the steady depreciation of the US dollar are scrambling for low cost office space at suburbs and even at Tire-II cities.

This is why several organised and unorganised players are constructing huge amount of commercial office space for speedy consumption.

But there is a caution for investors. "Indian real estate sector is exposed to global liquidity and interest rate related risks and threat from other emerging markets. The Indian real estate market is hence vulnerable to global risks and any adverse movement could be a dampener to its growth momentum," said the Ernst & Young report.

Courtesy: HT, dtd: 12^th Nov. 2007