The current slowdown in the economy has affected rentals of commercial space in the country. Rentals are down, by upto 30% in the quarter ending March 2009. However, consultants feel that with positive growth in the country, downward movement in rentals is likely slow down in the coming months.

According to a report by global real estate consultancy firm, CB Richard Ellis, “Over the next few quarters, whilst some amount of further correction may not be ruled out, we do not expect the level of decline to be quite as sharp as in the preceding quarters.”

Real estate decisions, at a corporate or personal level, the research firm argued, cannot be postponed indefinitely. A report by it said transaction velocity should pick up across most major cities in the medium to long term.

The report says the stimulus packages announced by the government and the slashing of interest rates by the banks sparked hope that real estate activities would pick up in the medium term. “This in turn is expected to provide an impetus for the property market from the downward trend that it has experienced in the last few months, at least in the lowto mid-end housing segment,” the report said.

Another round of cut by the RBI in its policy rates, set out while announcing its annual credit policy recently, has given hope of further cut in interest rates by banks. This will help in reviving the demand in the interest-rate sensitive sectors like real estate, automobile and retail.

The real estate sector is facing one of the worst times in recent times owing to a global downturn, severe liquidity crunch and high interest rates. Office sector is suffering price and rental correction due to sluggish demand and over supply. Because of a booming economy, developers had overestimated the requirements of real estate in times to come. They launched a number of projects to meet the expected demands , which did not materialise.

The report says that office sector in all the seven major cities like National Capital Region of Delhi, Mumbai, Bangalore, Chennai, Kolkata, Pune and Hyderabad witnessed a drop in both rental and capital values in the first quarter of the current calendar year.

“Demand remained sluggish with most occupants, especially from the financial and IT sectors. At the same time, those buildings, which were launched a couple of years back, when real estate was booming, and there was no inclination of any impending slowdown to affect them, are getting completed. This has increased the supply of office space in the market.”

However, the situation may improve in the next few quarters. The adverse supply demand mismatch and non-availability of a financing option has resulted in a substantial slowdown in construction activity across the country and most new projects remain on paper, the report points out. This will lead to a reduction in supply in times to come. If the economy revives and the demand picks up again, there will be a situation of demand outstripping supply.

Source: Economic Times, Chennai Edition