Why rents for premium Mumbai office space are falling

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Mumbai | Updated: August 10, 2015 9:03:42 AM

A year back Ceejay House, located in Worli and with a gorgeous view of the Arabian Sea, had virtually no space to lease out.

Mumbai, Mumbai development plan, Mumbai Development Plan 2034, Bharatiya janata Party, Devendra Fadnavis, Shiv Sena, Mumbai Floor Space Index, Brihanmumbai Municipal Corporation, Congress, NCP, Economy news, Nation newsRs 725 per sq ft per month, the rate at which London-based Barclays leased a 15,000 sq ft office, rents have fallen off to around Rs 300 per sq ft per month. (Reuters)

A year back Ceejay House, located in Worli and with a gorgeous view of the Arabian Sea, had virtually no space to lease out. But now a fourth of the building is understood to be vacant with several tenants having moved out, reports Shubhra Tandon in Mumbai. At the peak of the real estate boom in 2007-2008, the building commanded rents higher than those in London and twice as high as those in Manhattan, New York. From the peak of Rs 725 per sq ft per month, the rate at which London-based Barclays leased a 15,000 sq ft office, rents have fallen off to around Rs 300 per sq ft per month. While these may be at a premium to the rest of the market, they’re way lower than the average of Rs 400 to Rs 500 per sq ft per month seen six years back.

Ashutosh Limaye, head of research, JLL India, says Ceejay House continues to command a premium and to be sought after by marquee clients though he agrees there are many companies looking for cheaper office space. Indeed, rentals across Mumbai have come off in the past few years; moreover, premium office buildings in Nariman Point too have seen a churn in tenants with the profiles of occupiers very different today. Instead of large corporates, chartered accountants, lawyers, exporters, liasioning and consultancy firms are running their businesses here. Maker Chambers III for example is less than 10% empty, while in Maker Chambers VI, 85% of the space is occupied.

Rohit Kumar, head of research, DTZ India, feels that although Nariman Point is seeing a rise in demand, there isn’t too much Grade A space available. “There’s no supply in the Nariman Point market and rents appear to have bottomed out at an average of Rs 230 per sq ft per month,” Kumar observes.

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A check on vacancies and rents at premium buildings, done by FE last year, showed the increase in the supply of Grade A space had resulted in rents falling though they were almost fully occupied. However, in some part of the city, the Peninsula Business Park, in Lower Parel, for instance, vacancies have dropped from close to 19% last year to just 5% now. At Maker Maxity in the Bandra Kurla Complex, they have come off from 18.5% last year about 10%. Some of this has to do with the meaningfully lower rents; from the peak of around Rs 250 per sq ft per month in 2008, rents in Lower Parel are now at Rs 180 per sq ft per month. In 2010, Morgan Stanley had leased a 1.5 lakh sq ft space in One Indiabulls for around Rs 190 per sq ft, suspected to be among the bigger transactions that year.

In BKC, with the constructions being relatively new—two to three years old— vacancies are slightly higher at around 30%-40%. The sole exception is Maker Maxity; experts say the two other top-notch buildings FIFC and TCG Financial Centre are 30%-40% empty. However, even at Maker Maxity, rents are at about Rs 325-335, a tad lower than last year’s levels of Rs 350-Rs 360 per sq ft per month while for FIFC and TCG, they’re between Rs 320 and Rs 350 per sq ft per month.

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