Vacancies at commercial properties in India's financial capital have more than doubled in the last three years as economies continue to flounder, but according to most media reports, the most affected is South Mumbai's pride—Nariman Point, once a prime business centre and desire of almost every businessman.
In comparison, Delhi's Connaught Place seems to be holding on to its virtue.
According to a survey by CBRE Global Research and Consulting, from being the seventh most expensive place in the world for office space in 2006, Nariman Point is down to the 25th position,while Delhi's Connaught Place is still the fifth most expensive work place in the world despite offices moving to Gurgaon and Noida.
In April this year, Bandra-Kurla Complex (BKC) beat the Central Business District of Nariman Point as the most expensive office space in India. In March, Nariman Point fell out of the top 10 global commercial rentals rankings too.
So why has Connaught Place still managed to hold, while Nariman Point is running on empty, like this Mumbai Mirror article points out?
"CP (Connaught Place) is the only area in New Delhi which is still close to the state government and the administrative offices as against Mumbai where Parel and Lower Parel are not far from the main CBD," says Mudassir Zaidi, regional director - north, Knight Frank India.
Hence, unlike Mumbai, where Bandra-Kurla Complex, Andheri or Lower Parel offer plenty of supply, the alternatives to Connaught Place are at some distance in Delhi.
He also said that only Grade A buildings in CP command such high valuations whereas grade B and C do not appreciate much, which is why Connaught Place still ranks high in world rankings. In Nariman Point too, grade A buildings have not lost their sheen, but other business districts have grown more rapidly than Gurgaon and Noida.
Anshuman Magazine, Chairman and Managing Director, CBRE South Asia, echoes this view.
“In prime central business locations, the supply of space is extremely limited with almost no new supply expected in the near future," he said.
But is this change the culmination of the steady movement of corporate offices from South Mumbai to the more accessible locations in the suburbs or simply a correction in the market?
A number of global banking majors such as Standard Chartered, Morgan Stanley, Deutsche Bank and Citigroup and consumer goods major HUL have shifted to suburbs such as BKC and Andheri, respectively, in the last few years where rentals are low and space is ample as against the multiple ownership pattern in Nariman Point. But managers, merchants and consultants still like to be based at Nariman Point, where crores of rupees worth of business originates every day.
Experts said corporate houses and financial institutions prefer BKC because of its central location, good connectivity, superior quality of the properties and adequate parking facilities.
Mahesh Aras, chief administrative officer and head of human resources, JP Morgan India told the Mumbai Mirror that after moving to BKC, its current location is in a standalone building, exclusively dedicated to its wholesale banking businesses. "At Nariman Point, we had a staggered presence across floors in a multi-tenanted building.”
Naturally, the shift is reflected in Nariman Point rentals too.
According to a report by BNP Parbas, average rental values in Nariman point have fallen from Rs 310 in the third quarter of 2011 to Rs 280 a sq. ft in the third quarter of 2012, an 11 percent decline.
However, the fall in rentals is across the market and not just Nairman Point alone. The same report suggests that rentals in BKC are down from Rs 325 in Q2 2011 to Rs 285 in Q3 2012, while Lower Parel is down from Rs 160 to Rs 150 in the same period.
Data provided by property research firm DTZ showed Mumbai witnessed a drop of 3% in prime rent in 2012 due to high availability and low demand.
Experts say the negative buzz about Nariman Point is to lure more corporates towards BKC where vacancy levels are very high. "Take for instance the Wadhwa group-developed project The Capital, where vacancy levels are over 30 percent. These developers are in dire straits. Any negative news about South Mumbai is positive for them," a real estate expert told Firstpost on condition of anonymity.
"What is more important is to read in between the lines. These are premium valuations but most transactions are occurring at half the prices. While in BKC, transactions are taking place at Rs 200 a square feet, in Lower Parel it is even less than Rs 100 because of low absorption," says Pankaj Kapoor, MD at Liasas Foras.
Even Ramesh Nair, managing director (west India) of Jones Lang LaSalle, a commercial real estate consultant is of a similar view. Admitting that there is dearth of new supply in Nariman Point, he says grade A properties like the Hoechst House, Nirmal, Nariman Bhawan and Express Towers continue to command premium valuations and have more absorption than those of Parel and BKC.
" The efficiency of a building ( the amount of carpet area against the super built up areas) is the highest in Nariman Point, at around 85-90 percent. In Lower Parel and BKC, it is as low as 65 percent," he says.
But since the city's office property market is in the midst of a major increase in supply, rents have come down.
So why the preference for BKC over South Mumbai?
Says Nair," For those corporates that require larger floor space and want to merge front and back office operations into one, relocating makes sense." But even today, the creme de la creme want to retain their offices in Nariman Point because of its social infrastructure, clients and proximity to local transport.
Little wonder that the Sahara Group wanted to pay a premium to lease the Air India headquarters.
The future of Nariman Point
Having said that, the fact remains that most buildings in Nariman Point are at least 30 years old and there is absolutely no new supply in the market. These buildings are obsolete for many tenants, especially the newer economy corporates and multinationals. Many sophisticated tenants, who can afford to pay such high rentals, expect certain standards in terms of safety and quality, which is lacking in Nariman Point, especially after the 26/11 attacks.
If a company occupied even one floor in a Nariman Point building, they usually had multiple landlords. One landlord would want them to vacate and another would want them to pay a higher rent.
Nair thinks the problem can be solved by refurbishing of old buildings and combining small ownerships into one single consolidated ownership. While some buildings have put up large LCDs, and transformed interiors with a combination of heritage and contemporary designs, topped with metallic-finish elevators, others too have begun with the makeover exercise.
But Samanthak Das, Director, research at Knight Frank India, thinks otherwise.
Nariman Point has two alternatives.
First, the slow deterioration will continue unless some urgent improvement in physical infrastructure is taken. Secondly, rental values will fall so low that there will again be some amount of movement back into Nariman Point," said Das.
But whether the clientele will remain the corporate bigwigs or private entrepreneurs is a question none can answer just yet.