There is a glut of office spaces with the country’s economy slowing down. This in turn, has pushed freezing development, up vacancy rates and prompted some builders to change commercial projects into housing establishments.

It is believed that the demand for offices in India has been on a steady decline. It faces the gentlest development in a period of 11 years. In the three months to September 30, new supply in India’s seven major office markets, which includes Hyderabad, Bangalore and Mumbai, fell to a low.

Reduced Demand

About two years ago, India was the favorite of the global investors. In the year ended March 2011, the economy expanded more than 9 percent. According to CBRE, which started gathering data that year, it stimulated 55 million square feet (5.1 million square meters) of new office space across India’s key cities in 2010.

With the economic growth falling by 50 per cent, and investors expressing very less faith in the government which was fighting corruptions, the building boom ended with that.

Cheaper Rents

The rents are less costly owing to the increase in empty office space in New Delhi and its surrounding areas, like National Capital Region, and Mumbai. According to a data by Jones Lang LaSalle, average prime office rents in Mumbai’s Bandra Kurla, was $581 per square meter a year. On the other hand, rents in Delhi were $374 per square meter. Whilst rents in Hong Kong was the highest at $1,486. This was followed by Beijing at $1,004.

Price Correction

According to an executive from Jones Lang LaSalle India, in the third quarter of 2008, Indian cities did not recover from the rental and price correction of between 20 percent and 40 percent. Moreover, what kept the prices and rents in check was the oversupply created in Indian cities.

According to CBRE, Bangalore, which is an established technology hub of India, has the largest office market in India with about 100 million square feet.

Bangalore – The CBRE also stated that Bangalore which is home to Qualcomm Inc., and Texas Instruments Inc., – has posted the sharpest deterioration in office space. Whereas, the NCR witnessed an 80 percent slide.

Rising Vacancies

What are prompting the developers to put off projects is the declining rents and rising vacancies. DLF Ltd. (DLFU), which is India’s biggest publicly listed builder, is presently holding off building new office towers until it witnesses a recovery in demand.

Turning Residential

In order to counter the decline in demand, there are some developers, like Oberoi Realty Ltd. (OBER), India’s second-largest by market value, who are considering converting plans to build offices into residential buildings.

Already, many developers have converted their commercial projects into residential owing to the fact that they provide positive cash flows upfront.

Economic Outlook

According to Cushman, It has been noted that DLF switched to plans for housing from office for a 17.5-acre (7-hectare) plot in central Mumbai before deciding to sell it to the Lodha Group last year.

According to a survey by the Reserve Bank of India, the country’s economy may expand 4.8 percent in the year through March 2014. This will be the slowest since 2003. From a year earlier, Gross domestic product rose 4.6 percent in July through September.

Bangalore Offices

However, not every builder is hesitating from adding supply. RMZ Corp., which is the largest office developer in south India, is still building offices outside of the central business district in Bangalore. Bangalore is home to Goldman Sachs Group Inc.’s third-largest office globally too.