Residential may be a mess but Mumbai office space better on low rentals

Mumbai’s office market is holding steady as the reduced rentals in the first nine months of 2013 have encouraged developers to lease more space resulting in more transactions in a lacklusture market. Hence absorption levels this year have marginally exceeded those during the same period in 2012 while a lower number of deliveries this year has effectively offset the decrease in absorption, according to a new report by real estate consultancy firm Knight Frank.

Knight Frank India is of view that Mumbai office property market has already bottomed out and is holding steady despite uninspiring economic environment. “Though rentals remain under pressure, it will encourage transactions in an otherwise lackluster market,” the report said. This is because corporates will get a good deal for long-term lock in leases.

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[caption id=“attachment_1087043” align=“alignleft” width=“380”]  Knight Frank India is of view that Mumbai office property market has already bottomed out and is holding steady despite uninspiring economic environment.[/caption]

However, it should be noted thatdemand for premium offices in India has been declining as India faces the slowest expansion in 11 years. Little wonder that Cadbury’s South Mumbai property could fetch only Rs 350 crore or that the Express Towers deal in Nariman Point took so long to finalise.

“Some of the deals are happening where there is land parcel as in the case of Cadbury. There are many such deals in the pipeline but overall there are not many takers for premium office space, said a senior Knight Frank executive.

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According to a CB Richard Ellis report, rentals in Nariman Point havebeen falling steadily. In the last two years alone rentals have crashed over 20 percent as new Central Business Districts (CBDs) have come up in places like BKC, Lower Parel, Navi Mumbai, Andheri, Mulund and Thane.

So, these areas have offloaded the demand and since new business districts are available at cheaper rates, companies prefer setting up businesses outside Nariman Point.However, the real estate crash has hit businesses everywhere in the city and even business hub BKC has felt the slump since vacancy levels here too have sustained at 15 percent.

According to the Knight Frank report, the total office space stock in Mumbai is 101.2 million.sq ft of which 77.9 million.sq ft is occupied, resulting in vacancy level of 23 percent.

So basically, anincrease in empty office space has made rents in Mumbai less costly. Mumbai was ranked sixth for the cheapest rents in business districts in Asia-Pacific cities, according to a report from Chicago-based Jones Lang LaSalle Inc in August.

“The current commercial real estate market continues to be tenant/ investor leaning. Tenants as well as investors should capitalize on this time as Grade A commercial supply is shrinking with developers shying away from launching new projects,” saidViral Desai, Director, Office & Industrial, Knight Frank India

Of all the sectors,Banking, Financial Services and Insurance (BFSI) suffered the most while IT/ ITeS and manufacturing constituted a majority of the transaction pie in the second quarter.Historically, the BFSI sector has been the primary driver for office space market in Mumbai but it saw a steep drop in the third quarter of the current fiscal. The IT/ITeS sector fuelled absorption activity owing to a 31% growth in numbers thanks to an improving global economy and an unprecedented drop in the rupee.The manufacturing sector however claimed the largest chunk of the absorption pie in Q3 2013.

The Accenture deal at Gigapolis, Airoli was the largest transaction of the second quarter. IBM, TIBCO Software and geometric software were the most active companies in IT/ ITeS sector during Q3 2013.

[caption id=“attachment_1253273” align=“aligncenter” width=“600”]  Data provided by Knight Frank[/caption]

Over 0.61 mn. Sq.ft was taken up the manufacturing sector out which nearly half was contributed by Glenmark Pharmaceuticals