Dismal business sentiment leading to lack of demand, and some over supply have brought office space rents under pressure in prime locations of Nariman Point and Bandra Kurla Complex (BKC) in Mumbai.
The average rentals for office space in central business district of Nariman Point, Fort, Cuffe Parade, have seen a nearly 13% year-on-year dip in the three months of October to December 2013 to R240 per sq ft per month, while in BKC and Kalina the fall has been a bit less, but yet close to 7% to R270 per sq ft per month, data from CBRE South Asia, global real estate consultants, show. The rents have seen a y-o-y fall in the previous three quarters of 2013 as well.
The fall in office rents in BKC is interesting. Rent levels currently seen in BKC are close to the levels last seen in 2005-2006, before they touched historic highs of R300-R450 per sq ft per month in 2007-2008, says Viral Desai, director (office transactions), Knight Frank India.
With the increasing popularity of the location, a number of new commercial projects started coming up in BKC, but with economic and political factors affecting demand, it has become a case of demand-supply mismatch, say consultants. “The office stock available in BKC currently is much higher than the demand for it. Also, the demand is subdued for a combination of factors like uncertainty in political environment, policy paralysis, economic slowdown, etc,” says Desai. He calls it a temporary phenomenon and says that “this is a good time to lock deals as rents have bottomed out”.
Nikhil Bhatia, head (western region), CBRE South Asia, says that absorptions in BKC may have taken a break but the location has not lost favour with occupiers. “BKC is the business hub of Mumbai and continues to develop with a lot of good social infrastructure coming up, as options for recreation like restaurants, clubs, etc, increase,” he says.
On the other hand, even if temporary, the secondary and peripheral business districts of the city seem to be gaining in this scenario. The rentals in Navi Mumbai for example hover between R42 and R52 per sq ft per month, about 5.5-6.5 times lesser than rentals in south Mumbai locations, and BKC and Kalina, respectively. Even in Andheri, Malad, Goregaon areas, the rents are much lower at around R95 per sq ft per month to R115 per sq ft per month, CBRE data shows.
“Going forward, demand is likely to be concentrated mostly in peripheral markets, owing to abundant availability of cost-effective Grade A office space options. Around 3 million sq ft of office space is likely to be released in these peripheral region by the first half of 2014... Owing to large anticipated supply addition, rental and capital values are likely to remain under stress in most micro-markets in the short to medium term,” says CBRE’s India office market view for Q4 2013.