During the past two-three years, rental rates for office space have been rising relentlessly in the major metros. The reason: indigenous businesses have been expanding and a large number of foreign companies have also entered the market. Moreover, the IT-ITeS sector, which accounts for about 75 per cent of the demand for office space, has been growing at above 30 per cent. Together, these factors have augmented demand. While demand has grown, supply has failed to keep pace as it requires at least 18 months or more to develop a modern office building. The result: supply shortages and escalation in rentals. But that may be changing now.

NCR: Rentals slowing

In Delhi, the growth of rental rates slowed down during the third quarter of 2007. According to Sanjay Verma, executive managing director of real estate consultancy Cushman and Wakefield, “The slowdown in rental growth happened owing to a combination of factors. In the central business district (CBD) of Connaught Place, rates have already reached high levels. At other places like south Delhi, Gurgaon and Noida, the slowdown has occurred due to new supply becoming available.”

In the CBD, rental rates in quarter 1 rose 26 per cent over the corresponding period the previous year. That has come down to 5 per cent in quarter 3. In south Delhi markets like Jasola, Vasant Vihar and Saket, the rate of increase was 12 per cent during quarter 1 and has come down to 3 per cent in quarter 3. In Gurgaon, the decline in rental growth has been quite drastic: from 30 per cent in quarter 1 to 1 per cent in quarter 3. “With over 4 million sq ft supply having entered the Gurgaon market by quarter 3 and another 1.6 million sq feet planned for the last quarter, the growth in rental values has slowed down,” said Verma.

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