Weak Office Space Absorption Hits Commercial Realty

According to some top real estate consultants’ reports office space absorption is weak in many top cities of India. This has adversely affected commercial realty.

Commercial realty is affected badly by the weak office space absorption. In the opinion of Cushman & Wakefield and DTZ weak office space absorption is due to the sluggish IT demand. Office space absorption by IT firms has declined over the years.

Both DTZ and Cushman & Wakefield tracked top eight cities. Analyzing the facts they revealed that in many of the cities office space absorption is weak. The main reason for this weak absorption rate is mainly due to the weak IT demand.

Around 29.05 million sq. ft. of office space was demanded in 2012. This rate is far lower than what was absorbed in the year before. It shows a decline by 23%.

In 2011 64% of total office space was absorbed by IT firms. However their rate of absorption got lowered to a mere 44% by 2012. This has adversely affected the entire commercial real estate sector.

As against the 16.08 million sq. ft. of office space absorption of 2011, IT firms occupied 13.22 million sq. ft. last year.

On the other side IT firms are affected by the global financial crises. European crises affected them severely. Many of the IT firms have postponed their expansion plans due to this global economic crisis.

Main reason for this is that western countries do remain as a major source of income for the IT firms. It is estimated that around 85% of the total inflow of revenue is from these countries of the West.

Commercial real estate will improve only if the IT demand improves. However as long as the global crisis remains, there is no chance for a correction in the IT demand. It means that the commercial sector will have to wait still longer for a revival. No quick revival seems possible.