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The macroeconomic overview of India continues to show weakness by registering GDP rate of 4.5% in April-June 2013 which was the slowest quarterly growth rate in the last 4 years. Rising inflation, volatile equity markets and depreciation of rupee further intensified the economic risk in Indian markets. As well, upcoming elections in 2014 further raises question marks for the future of Indian economy and its recovery. All these factors leads to adoption of more conservative approach by businesses and resulted in overall demand softening in commercial real estate markets. According to the 3Q 2013 research report, relocation and consolidation were the primary demand generators for commercial office space. The six major cities - Mumbai, NCR, Bengaluru, Chennai, Kolkata and Pune recorded an overall absorption of around 6.2 million sq. ft. which is approximately 20% lesser than the last quarter absorption of around 8 million sq. ft.
Project completions were rather weak this quarter totalling to approximately 3.1 million sq. ft. of grade A office space across all markets. More than 60% of this supply was added in cities like Bangalore and NOIDA. A few new projects were launched during 3Q totalling approximately to over 5 million sq. ft. of office space mainly in NOIDA, Bangalore and Delhi and are expected to be delivered within 2015-2017 period. Overall, rental rates remained stagnant throughout all markets with exception of few micro market in Kolkata and Gurgaon which saw downward pressure on rentals in the range of 1 to 7% QoQ.
As the economic environment in India is expected to remain uncertain due to overall global economic conditions and upcoming elections in 2014. Office tenants will continue to relocate to consolidate office space by postponing their expansion plans and rather adopting a wait-and-watch strategy for the rest of 2013 and mid 2014 until the market regains momentum. In view of the above, we anticipate moderate leasing demand across the cities in upcoming quarters. Limited supply will keep the rentals stable as developers deferring completion of their projects and refrained from adding more speculative supply in the market.