According to the latest office market report released by CB Richard Ellis (CBRE), with companies putting their expansion plans on hold, several transactions for office space in the fast-emerging commercial market of Lower Parel could not be closed. As a result, occupancy levels remained low.

The only significant leasing transaction that occurred in the last quarter of 2011 was India Hotel taking up 40,000 sq ft in the Indiabulls Finance Centre. The report states that the high level of vacancies has forced developers to delay their project completion plans to 2012. It says, “Sluggish market conditions led to delay in completion of almost 1.1 million sq ft of new office supply in one of the prominent projects (in Lower Parel) to early next year.”

While Lower Parel has been the most hit, other office micro-markets of Nariman Point, Worli-Prabhadevi, Bandra-Kurla Complex, Andheri, Powai, Navi Mumbai and Thane witnessed low vacancy levels and no change in rental values. Due to this, the last quarter of 2011 saw very little new grade A office supply being infused into Mumbai’s commercial market. Much of this delayed supply is likely to be ready in 2012, which will further increase the vacancy rates and exert a downward pressure on rentals.

The report predicts a bleak scenario for the year ahead with demand for office space expected to slip further not only in Mumbai but in major cities across the country.

Anshuman Magazine, chairman and MD for CBRE South Asia, said the slowdown in supply and absorption of office space points to the uncertainty within the corporate sector. “The continuing volatility in the global and Indian financial markets coupled with rising inflation and interest rates has led corporates and developers to be cautious in their expansion plans,” he said. He pointed out that the liquidity crunch, high interest rates and wavering demand, which are adversely affecting commercial projects’ completion, are here to stay until the economic situation improves.