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High vacancy to keep commercial, retail rentals in check in Ahmedabad

Vinay Umarji/Mumbai/ Ahmedabad 04 Dec 12 | 12:57 AM

Despite an unprecedented supply expected in office, commercial and retail space in Ahmedabad, the rental values will remain in check for the calendar year 2013, say industry experts. This is due to the high levels of vacancy prevailing in the three segments.

"Supply has been continually rising in the city. More is expected to be added in 2013 in office, commercial and retail space. However, due to vacancy levels of around 40-60 per cent in the three segments will keep rental values in check," says Rajeev Shah, managing director of RBSA, a valuation and consultancy firm in Ahmedabad.

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Currently, the rentals for office and commercial segments in commercial business districts (CBDs) like Prahladnagar, CG Road and SG Highway stand at around 25-40 per sq ft at varying degrees. The same in retail segment is around 70-100 per sq ft depending on type of property and area.

According to a recent report by real estate consulting DTZ, the office space itself is set to witness a significant rise in supply in 2013, up from 1.3 million sq ft in 2012 (YTD) in Ahmedabad. "The transaction activity in the city has been driven by banking, telecom and pharmaceuticals companies coupled with expansion by several local businesses. As a result, the city witnessed approximately threefold increase in supply, recorded at 1.3 million sq ft in 2012 (YTD) as compared to 0.5 million sq ft in 2011," the report stated.

However, Neeraj Tomar, head - Ahmedabad operations at Jones Lang LaSalle (JLL) India stated that developers and investors alike have become more flexible in the recent times towards rental negotiations.

"More flexibility is being witnessed in rental negotiations due to high amount of vacancy levels. Developers and investors are willing to take a hit on their margins as well. However, while supply will continue to be added in office, commercial and retail space, rising construction costs and vacancy levels will not allow rental values to either rise or fall," said Tomar.

Commenting further on developers' margins, Shah said, "As against a margin of 8-9 per cent on rentals, developers and investors are now willing to take a margin of 6 per cent."

Meanwhile, as per the DTZ report, With large upcoming supply expected to outstrip demand, rental values are likely to remain largely stable.

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