Office rents are trending down in Mumbai’s prestigous Bandra Kurla Complex (BKC). Rents, which were in the region of Rs 400-425 per sq ft about five to six years back, have fallen off sharply and Knight Frank, India, now pegs BKC rents at between Rs 220-230 per sq ft. At least three companies —UBS, Deutsche Bank and a New York-based financial services MNC — are learnt to have re-negotiated their leases at rates that are 15-20% lower than they were a couple of years back.
While Deutsche Bank and the financial services firm are housed in Capital in G Block, UBS works out of Maker Maxity; it had moved in around six years ago when BKC was emerging as the city’s newest business district. At the time, a host of banks and companies were shifting out of the older Central Business Districts (CBD) of Nariman Point and Fort.
Although that exodus continues — Bank of America Merrill Lynch is among the new kids on the BKC block — experts say rents could head lower in BKC. That’s because banks and financial institutions, who are the biggest tenants here, are looking to trim their overheads.
Gautam Saraf, MD, Mumbai at Cushman and Wakefield, believes given the somewhat sluggish economic environment today, companies would consider re-calibrating their real estate requirements and might even re-locate. A report by Collier International reveals it’s the more affordable Andheri suburb that has seen the biggest share —55% of new leases — followed by Navi Mumbai, where there is ample space. In contrast, the tony BKC is attracting mainly the upper crust — Apple and Google — and consequently, accounts for just 15-16% of new leases.
Whatever the location, however, companies are keeping their offices cozy for now — in recent months the most space any firm has rented is just 10,000 sq ft. That cannot be good news especially for developers in BKC since banks typically occupy large spaces of anywhere between 25,000 sq ft and 80,000 sq ft. Filling these up will not be easy, Saraf pointed out. Which is why they’re likely to agree to retain clients at lower rentals. After all, as one expert pointed out, even at the lower rate, Deutsche Bank would still be forking out close to Rs 2 crore a year, not an amount to be sneezed at. Wadhwa Developers, which built Capital Building, could not be reached for a comment.
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Rents in BKC were driven up in 2011-2012 by investors, including HNIs, who had bought unleased space in office towers. However, having been unable to sell these units, they are offering them to lessees at far more affordable rates.
Sanjay Dutt, CEO, Ascendus, (India), points out that developers had five years ago sold space across buildings to be able to raise funds to complete projects. “If there has been strata selling in a couple of buildings in a micro market, it would impact rents. Within a half a kilometre radius, someone will offer a lower rate,” Dutt said, adding such discrepencies could be seen even in areas like Whitefield in Bengaluru. Experts said in Mumbai too, areas such as Lower Parel, a building with several owners had seen rents fall by 30-35%.
Leasing volumes in Mumbai fell 15% in 2016 to 5.6 million sq ft, Colliers International estimated. The correction in rents started a few years back in parts of South Mumbai; the upmarket CJ House, for instance, where Credit Suisse had once leased space at more than Rs 700 a sq ft, now costs half that.