Office rentals across the property market have increased by 6% during the first quarter of 2008 on account of rise in supply of office space, according to global consultant Cushman & Wakefield.

"Rentals across office real estate markets showed a marginal average increase of six per cent over the last quarter coinciding with the increase in overall office supply," C&W said in its latest report.

According to the report, the first quarter witnessed a total office supply of 15.54 million sq ft, which constitutes about 19% of the total expected supply for 2008 that is estimated at 82.8 million sq ft.

The rentals, in a substantial number of micro-markets across the major cities remained stagnant during January-March quarter of this year, while in certain suburban and peripheral locations it witnessed a slight decline, the report stated.

The stability and marginal decline can be attributed to the high price points already attained by most of the micro markets and the increased availability of ready options, the consultant said.

"There has certainly been a marginal slowdown in the rate of growth across all segments of real estate and its probably good news for the market to have some degree of correction, since the long-term demand continues to look robustly healthy and the next cycle could be more sustainable and strong," C&W India Joint Managing Director Sanjay Dutt said.

However, the rentals in the Central Business District (CBD) locations continue to witness relatively higher growth.

Pune emerged on the top in terms of the highest rental supply and availability of good quality Non-IT space led to appreciation of rental values in this micromarket, it said.

NCR rental values increased in the range of 2-4% in select micro markets such as CBD and South CBD. The commercial segment of Gurgaon witnessed rise in rental by 3% owing to infusion of fresh supply in the quarter. Rental values in the IT segment in Noida witnessed a 4% decline over the last quarter due to the addition of fresh IT supply to the existing vacant space.

However, a clear scarcity of ready commercial segment supply led to 10 per cent rental appreciation over the previous quarter in Noida.
Rental values in Mumbai increased by 5-10% during the first quarter of 2008 against the previous quarter.

Meanwhile, demand for office space remained upbeat across major cities and stood at approximately 14 million sq ft in the Q1 of 2008. The demand included absorption of 8.2 million sq ft and pre-commitments of about 5.5 million sq ft.

"The absorption in first quarter recorded a growth of 67% over the absorption in same period last year, reiterating the fundamentally strong market dynamics which continue to drive demand," C&W said, adding that quantum of pre-commitments has not witnessed any significant rise in the Q1.
Bangalore and the NCR recorded the highest pre- commitments in the January-March period and together account for 56% of the total pre-commitments.