Excess supply to hit real estate-India Business-Business-The Times of India

NEW
DELHI: Commercial real estate market, which has been witnessing a bull run over
last couple of years, will soon face a bearish phase. Oversupply of office space
in most of the grade A cities in last six to 12 months, may result in a fall in
rental and capital
values.

According to a report
by global real estate consultancy firm DTZ, ctites like Delhi, Bangalore,
Chennai, Pune, Kolkata, and Hyderabad, except Mumbai will have oversupply of 20%
to 200% of estimated demand in 2007. Mumbai will continue to have supply
shortage.

According to Ankur
Srivastava, MD, DTZ India, “The city-level demand-supply analysis in
conjunction with the economic fundamentals shows office space rentals are likely
to hit a plateau in next six to 12 months.�


He said barring a few exceptions,
primarily the central business districts (CBDs), the oversupply situation will
lead to a correction in office rental values. Lack of fresh supply in the CBD
because of non-availability of land will not create oversupply
scenario.

He added that
correction in rental values will not be driven by lack of demand but due to
oversupply. The leasehold office space markets are currently at an all time high
— both in terms of quantum of space leased and rents. Lease rentals in NCR
has gone up by over 200% in the last two
years.

The study finds that
rising capital and rental values and easy availability of capital have led to
start of large number of projects at major locations. The increased pace of
supply of quality commercial real estate is likely to outstrip demand in the
short-to-medium term, the report said. However, it is expected that the
oversupply position will reduce in long term as demand grows and supply tapers
off. So, stakeholders like occupiers, investors, developers and intermediaries
will formulate their strategies
accordingly.

There are various
factors that will define the degree and timing of this rental value correction.
Srivastava said the threshold for this correction has been brought closer by the
two recent interest rate hikes in the first three months of 2007. Degree of
Inflation and consequent measures taken by RBI in the money market will play an
important role in the real estate sector.


RBI tried to stem speculative
interest and reduce inflationary pressures in the economy by curtailing
availability of capital and increasing the interest rates. Srivastava said these
steps will impact new projects.


prabhakar.sinha@timesgroup.com