Office rented considerably less space from Jan to Mar; here’s what’s happening

Just 5 million sq ft of office space found takers in the three months to March, reflecting a vertiginous 58% sequential drop in the space.

Just 5 million sq ft of office space found takers in the three months to March, reflecting a vertiginous 58% sequential drop in the space. With the economy more listless than ever, fewer companies seem to have the courage to rent office space — even looked at in comparison with the corresponding quarter of 2015, the fall is a steep 26%, ruling out any seasonality.

In fact, the numbers reflect space rented by companies that may be relocating; the net area might turn out to be smaller than 5 million sq ft.

Navin Makhija, MD at Wadhwa Developers, pointed out that companies were more confident about their businesses in 2014 and were quicker to set up shop or expand operations. “The mood at the time was far better and transactions were closed out faster. These days it takes as long as six months sometimes to close out a deal,” Makhija said.

A contraction in demand for offices, as reported by property consultant CBRE, has been fairly widespread across micro markets such as the National Capital Region, Thane, Navi Mumbai, Goregaon and a few like Whitefield in Bengaluru.

Offices in demand include many of the newer buildings in the Bandra Kurla Complex Mumbai’s western suburb where primarily banks and financial companies are headquartered. Rents here have remained by and large stable and occupancies in the top-rung buildings are running at close to 100%.

The CBRE report noted businesses have been booking space in properties that are under construction because the prime locations are occupied.

However, these are typically small to mid-sized spaces. The loss of momentum in the absorption of office space this year has been attributed partly to the brisk pace seen in 2015 when some 38 million sq ft was snapped up, the highest in a year.

Meanwhile, private equity (PE) funds are looking to snap up more office space, with the segment having done well in 2015 and in the hope real estate investment trusts will soon take off. Marquee players like Blackstone have already accumulated a portfolio of close to 30 million sq ft of commercial space. Now others such as Kotak Realty, Piramal Asset Management, Brookfield Asset Management, Macquarie and Milestone are shopping for property. However, while money will move in, risk may not. Experts say purchases will be funded via structured debt rather than equity and while a few pedigree players may attract equity, fund managers will be largely cautious.

Sun Capital