In 2014, Ceejay House, located in Mumbai’s Worli area and having a gorgeous view of the Arabian Sea, had virtually no space to lease out. But in the past one year, a fourth of the building is understood to be vacant, with several tenants having moved out.
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. But from the peak of Rs 725 per square feet per month, the rate at which London-based Barclays Bank leased a 15,000 sq ft office, rents have come down to about half at Rs 280 per sq ft per month. That may still be higher than the average rents in Mumbai, but are certainly lower than the levels of Rs 400-500 per sq ft per month seven years back.
Ashutosh Limaye, head of research, JLL India, says although Ceejay House is among the marquee buildings of the city, “the occupiers of Grade A space are off that building”. He says corporates prefer being in Bandra Kurla Complex (BKC) or Lower Parel, where rents are comparatively lower, and which is where the new commercial neighbourhood is getting created, as more companies shift offices there.
For similar reasons, the premium office buildings in Nariman Point are also seeing a churn in tenants. The profiles of many of the occupiers is very different today; rather than large corporates, it’s chartered accountants, lawyers, exporters, liaison and consultancy firms that are running their businesses here. As a result, vacancy levels have moderated in the prime business district of south Mumbai. Premium buildings in Nariman Point, Maker Chambers III and Maker Chambers VI, for instance, have vacancy levels of around 15%-20%.
Industry consultants feel that although Nariman Point is seeing demand from professional services firms, there isn’t too much Grade A space available, and the rents have remained at similar levels over the last two years. According to the latest report of CBRE, the rents in Grade A office space in Nariman Point are ranging on an average of Rs 220 per sq ft per month, which have remained flat compared to last year, and were at about Rs 230 per sq ft per month in 2014.
A check of vacancies and rents at premium buildings, done by FE last year, revealed that the increase in the supply of Grade A space had resulted in rents falling, though they were almost fully occupied. However, in some parts of the city, Peninsula Business Park, in Lower Parel for instance, vacancies have dropped from 19% levels two years back and are closer to 10% levels now. At Maker Maxity in Bandra Kurla Complex, they have come down from 18.5% two years ago to about 10%.
Some of this has to do with the meaningfully lower rents; from a peak of around Rs 275 per sq ft per month in 2008, rents in Lower Parel presently are between Rs 165-Rs 185 per sq ft per month. In 2010, Morgan Stanley had leased 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 330 per sq ft, a tad lower than the levels seen two years ago of Rs 350-R360 per sq ft per month, while for FIFC and TCG, they’re between Rs 300 and Rs 320 per sq ft per month.
Gautam Saraf, managing director (Mumbai), Cushman & Wakefield, says the reason for the vacancy levels remaining high in FIFC and TCG is because the landlords want a certain profile of tenants and a certain level of rent. “A large portion of FIFC is occupied by Citibank, Oracle and some high-end retail joints. Similarly, for TCG, occupiers include African banks, consulates of different countries, etc. The landlords want the future tenants to be of similar Grade A profile, which is going to take time, but eventually it will also be occupied.”
Overall demand for office space in Mumbai has come down by 25% in the three months of January-March 2016 to one million square feet, says the latest office market report from Cushman. The report observes that delay in decision making process by Indian companies is leading to sluggish net absorptions of office space.