1. Commercial deal sizes across Indian cities heading south

Commercial deal sizes across Indian cities heading south

The focus of companies is towards building more efficient work spaces so that more open offices are preferred instead of cabins, pointed out Navin Makhija, managing director at Wadhwa Developers, in Mumbai.

By: | Updated: November 23, 2017 2:54 PM
Over the last three years, average commercial rentals across Indian cities have been heading south. (Reuters)

Over the last three years, average commercial deal sizes across Indian cities have been heading south. If it is at a jaw-dropping 47% in Mumbai, from 30,294 lakh sq ft in 2014 to 16,052 lakh sq ft in 2017, Pune has logged in a 22% decline, from 22,593 sq ft to 17,600 sq ft, over the same time frame. Likewise, in Delhi, the average plummeted to 20%, from 28,589 sq ft to 22, 961 sq ft, and in Chennai, the deal size diminished 25%, from 29,693 sq ft to 22,217 sq ft. So far, Bengaluru, which contributes most heavily to annual leasing in the country, seems insulated. With the average ticket size of office leasing in Mumbai falling by more than 30% in the last one year, industry observers mull over both cultural and market rationale for the overall countrywide dip.

The focus of companies is towards building more efficient work spaces so that more open offices are preferred instead of cabins, pointed out Navin Makhija, managing director at Wadhwa Developers, in Mumbai. “I would say it’s more a result of a cultural shift.” Experts contend that steep rentals at a time when the business sentiment is moderate is driving much of these decisions. Restructuring of work spaces where seating arrangements are fully optimised can result in cost saving of 30-40%, said Gautam Saraf, managing director (Mumbai), Cushman and Wakefield. For example, if a company needs 200,000 sq ft to seat its 2,000 employees by way of space rationalising, they can be seated in 120,000 sq ft and result in significant saving, Saraf explained. For instance, companies will consider how many people need to be seated at any given point of time rather than allocating fixed desks, thereby saving on opex. In Mumbai, pharmaceutical and media companies and banks are rationalising costs in a big way, Saraf said. This, despite the fact that office rents have been stable there in the past couple of years.

The last few years have seen global banking companies such as Standard Chartered, Morgan Stanley, Deutsche Bank and Citigroup and consumer goods major Hindustan Unilever, among others, shifting their corporate offices to Bandra Kurla Complex (BKC) and other suburbs from Nariman Point to save on monthly rents. According to property advisors, leasing activity in Nariman Point has considerably slowed in the last few years. From a peak of around Rs 500 per sq ft in 2008, rentals in the area have fallen to around Rs 220 per sq ft, bringing them even below the BKC rentals of 230-250 per sq ft.

Still, levels of Rs 200 to Rs 250 a square foot a month is very expensive, more than double of Bengaluru rates, pointed out one sector analyst. Part of the decline is also being led by the rise of co-working spaces. Instead of leasing offices and incurring a hefty capital expenditure, several companies are opting to work from agile spaces. Earlier, co-working space was limited to start-ups, but now even large players are adopting a capital-light strategy. For instance, in Mumbai, Discovery and Twitter have taken up large spaces in the WeWork co-working office in BKC. “Co-working spaces allow companies to save 20% to 25% rent in comparable locations,” said Juggy Marwaha, lead at WeWork India

  1. No Comments.

Go to Top