Premium office complexes in Mumbai’s Bandra Kurla Complex (BKC) are finally seeing an uptick in rentals even as rates in most other office buildings in the central business district (CBD) are stagnant at Rs 200-220 per sq ft. Property consultants Knight Frank India has estimated that top buildings such as Maker Maxity and TCG have seen a 5-10% increase in rentals to Rs 300-350 per sq ft from Rs 270-310 per sq ft about a year ago.
While rents had fallen by half from Rs 400-425 per sq ft five-six years back, experts say over the past few quarters, there has been a renewed interest for premium spaces. Rajesh Prasad, executive director, advisory and transaction services, India, CBRE South Asia, says, “Rentals are firming up for prime buildings in BKC. At the same time, the next tier of buildings continue to face pressure on rentals leading to developers willing to structure attractive rental deals.”
For instance, Asia-Pacific’s leading service office provider, The Executive Centre (TEC), and MSD Pharmaceuticals India, a subsidiary of Merck & Company, are believed to have re-negotiated their leases at rates that are 15-20% lower than what they were when they moved into the impressive business district six-seven years ago. TEC is housed in The Capital building while Merck is in Platina, both of them in G Block.
In fact, even in the most premium office complex, Maker Maxity, American investment bank Jefferies and global specialist recruitment firm Michael Page International renegotiated their leases just last year. However, this was because the two companies had moved in at a time when rentals were at their peak over seven years back.
Among premium buildings, First International Finance Centre (FIFC) changed ownership in early 2017 when US private equity major Blackstone purchased over 3.60 lakh sq ft, spread over six floors, in the 6.57 lakh sq ft building. Since then, when no deals were taking place, the rates have firmed up to between Rs Rs 300 per sq ft.
Earlier, there were issues with the basement and a fire had also broken out in September 2012.
Experts say what is hampering rental appreciation is the multiple ownership in all buildings – whether it is Godrej BKC, One BKC, Parinee or The Capital. According to Viral Desai, national director, occupier solutions, Knight Frank India, “There is someone who is desperate at any point in time so this brings down the value. On the other hand, there is no new supply coming up except Reliance’s Convention Centre but we do not know what is the office supply in this facility. In the absence of new supply, there is a pressure on rentals.”
Prashant Thakur, head of research, ANAROCK property Consultants, concurs. He says, “Although commercial office stock has increased in BKC, demand has been unable to keep pace, which has led to a rise in vacancy levels. Although vacancy in Grade A office space is lower at 14-16%, the overall vacancy is about 30-35%. Amidst subdued demand and rising vacancies, developers have been willing to strike new deals at lower rentals as well as re-negotiate old deals so as to retain their occupiers”.
As a measure of how much the market in BKC has fallen, in 2007, IL&FS was among the most premium buildings. Limitless, a private equity fund, which has since closed down after the financial crisis of 2008, had then leased 10,000 sq ft for Rs 550 per sq ft. Since then, many better and newer buildings that have come up are currently commanding rates that are about half the amount.
Prasad of CBRE says cost-conscious companies are looking at alternatives in the peripheral areas of BKC in places such as Kalina and Kurla. He said, “For instance, with the Equinox Business Parks office complex having just been sold to Brookfield in April this year, where the rent is in the range of Rs 150-160 per sq ft, located just off BKC, it is a very attractive proposition for a lot of companies who may baulk at Rs 250 or Rs 300. They know that with a counter-party like Brookfield, this office complex is being upgraded in terms of the user experience”.