Office markets across India showed a decline in rental values in the Jan-March period from the previous quarter due to sluggish demand, according to a report by global real estate services firm Cushman & Wakefield, released on Wednesday.

According to the study that covered eight Indian cities, supply outstripped absorption by 45 per cent in the January-March period of 2009. As a result, drop in rentals in major business districts of the country ranged between three per cent and 37 per cent as compared to the previous three months.

Fresh office space supply in Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, the Delhi National Capital Region, and Pune was 11.5 million sq ft, but absorption during the quarter was just 5.78 million sq ft, the report said.

"The first quarter of the year can be termed as the weakest so far in terms of commercial office take up across major cities in India as compared to a similar period for the last 2-3 years. Renegotiations and migration to more cost effective locations has been the norm for the cautiously advancing corporate sector," C&W executive director Kaustuv Roy said while releasing the report in New Delhi.

"While rental values are expected to be under pressure in short to medium term, going forward lower rentals are likely to have a more positive impact on the absorption numbers," Roy added.

''Re-negotiations and migration to more cost effective locations has become the norm for the cautiously advancing corporate sector. However going forward we are likely to see supply contraction,'' he said.

Though supply levels in the market is expected to fall, C&W predicted rentals to remain under pressure in the coming few months as well. "Going forward we are likely to see supply contraction. Acutely affected areas like IT/ITeS (industrial parks) and certain corporate office destinations will see deferment of projects to bridge the gap between supply and demand, according to the report.

Mumbai going cheap
Mumbai, the financial hub of the country, witnessed the sharpest decline in rental values in the first quarter of 2009. Rentals in the city's central business district fell to Rs350 per sq ft per month on an average, down 13 per cent from the previous quarter.

Rentals at Nariman Point, the city's most upscale office area, fell by 13 per cent in the first quarter of this year compared to 20 per cent in the previous quarter. Rentals in Lower Parel, a centrally located area, eased the most, falling 37 per cent to Rs190 per sq ft per month on average in the January-March period. Worli and Bandra-Kurla Complex districts saw a decrease if 29 per cent and 20 per cent respectively.

The Delhi National Capital Region also witnessed a significant decline in rental values. Rents in its central business district rentals fell 17 per cent to Rs273 per sq ft on average. The 17 per cent drop at the upmarket Connaught Place was the steepest in the last three years, C&W said. The drop comes after a 14 per cent decline in the previous quarter.

The slump in Bangalore was less, with rentals falling in the range of three to seven per cent in key markets. The city, now officially Bangaluru, witnessed the highest new office space supply of approximately 2.81 sq ft and also the highest demand of 1.29 sq ft.

In Chennai, the peripheral location of Rajiv Gandhi Salai recorded the highest vacancy of approximately 42 per cent, while the city average was at approximately 18 per cent. The lowest vacancy was recorded in Ahmedabad at five to six per cent. This was said to be due to limited leasing activities and no new supply in the market.

''Acutely affected areas like IT / ITeS and certain corporate office destinations will see deferment of projects to bridge the gap between supply and demand. While rental values are expected to be under pressure in short to medium term, going forward lower rentals are likely to have a more positive impact on the absorption numbers,'' Roy said.