Office-space demand adds to home woes

Source: DNA
Residential sales have declined in major cities, but prices are not falling yet
Pooja Sarkar & Vivek Seal.
Mumbai/New Delhi
There is a slowdown in the sales of residential projects. But the house-hunter is still cribbing.
His complaint is that the dip in sales is not reflecting in prices.
The villain here's the office-space segment. Surging prices in this segment is putting the real-estate developer under no pressure to change the pricing matrix in the residential segment.
Shailesh Kanani, research analyst, Angel Broking, acknowledges that sales in residential projects are going down.
"There's definitely a fall in residential sales. It has gone down 60-70% in Mumbai," he said.
In Delhi, it has fallen by 50-70% on a year-on-year basis. Sales are also declining in cities like Hyderabad, Chennai and Bangalore, but to a lower extent, two analysts told DNA Money.
But real-estate developers are not worried.
Says Amitabh Bhattacharya, senior vice-president, Omaxe Ltd: "Prices in the commercial space have gone up by 5-7% over the past 4-5 months. And it's expected to increase by at least 10% in the near future."
Who or what then are the drivers here?
According to Mayur Shah, managing director, Marathon Group, "A-class commercial properties are in demand from the banking and financial sectors. They are setting up offices aggressively Also, there are nearly 500 foreign companies, whose names we have not heard earlier, setting up offices."
Pujit Aggarwal, MD, Orbit Corp, presents another view.
"Whatever commercial premises are available are under construction and will get ready only in about 18-24 months. Corporates that are expanding can't afford to wait and are willing to pay the premium for good commercial buildings." India's No 1 real-estate company by market capitalisation, DLF Ltd, is upbeat about the demand in the office space.
So is Parsvnath Developers which has been trying to get 40,000 -50,000 sq ft of office space in Con-naught Place, Delh's commercial hub, though it has not been able to get any "In Connaught Place, office property is not available for any price. Rentals there have increased to Rs 400-500 per sq ft from Rs 100 per sq ft a year ago," chairman Pradeep Jain said.
In Gurgaon, office space rentals have tripled from Rs 30 per sq ft to Rs 80-100 per sq ft over the last three years.
He said that more than 100 million sq ft of office space is coming up in Noida in 3-4 years, with current rentals of about Rs 40-50 per sq ft. No wonder then that in Mumbai, places like Lower Parel, Worli and Mumbai are emerging as the new favourites, apart from the traditional ones like Nariman Point.
According to Abhishek Kiran Gupta, head of research, India, Jones Lang La Salle Meghraj, the headline rental, or the highest value of the deal, at Nariman Point is Rs 500-550 per sq ft. The average rental here is Rs 400-450 per sq ft.
Subramaniam Yadav, research analyst, Prabhudas Liladher Pvt Ltd, said, "For office spaces, places like Nariman Point have not seen any new construction but they are fully equipped and the new office place is surely Worli. I rate it at the highest."
Part of the crunch, says Jain of Parsvnath Developers, is because of troubles in project execution.
"Execution is a big concern as lots of smaller players enter into business and are not able to deliver," he said.