Office Rentals in Mumbai Witness a Downfall of 4%

India tops the chart in office occupier market in Asia. It has around 425 million square feet of office market with an annual absorption of 30 to 35 million square feet. Mumbai – the financial hub and commercial capital of the country has always been the best location for commercial space investment. With a large number of growth opportunities in commercial properties, investors within the country and overseas were showing high interest in commercial property in Mumbai. But there is a depressing scenario in this regard, where Mumbai is facing a 4% dip in office rentals in the first Quarter Q1 of the year 2015. While the real estate in Mumbai over the last few years remain unpredictable due to global economic uncertainty, the investors are keeping close eye on the capital-value appreciation and office space investment. As the rental yields in and around Mumbai decreases, the value and appreciation of commercial property in Mumbai is also prone to witness a downfall.

The CBD Nariman point, which was considered to be Mumbai’s power location and was called as the Manhattan of Mumbai is now losing its importance off late. The Nariman point area has seen a downfall of up to 3.4% in rentals in the last year. This downfall may be due to the fact that the demand for residential properties in Mumbai have moved towards its suburbs, which also drew the demand for office space to suburbs. Many corporates and commercial establishment have migrated from the CBD to Bandra Kurla Complex (BKC) and Lower Parel. This shift in corporate interest is due to abundant supply in BKC, Andheri and Lower Parel and also due to lack of amenities, parking area, and high rentals in the traditional CBD. This migration in the past five to six years have contributed a lot to the 4% fall of rentals in Mumbai property.

On the other hand, various software companies such as Cognizant, Google, Wipro, Accenture and Infosys are in search of Grade A office spaces across the country. At the end of March 2015, the total space utilized by Grade A office spaces have increased to 8.5 million square feet, which is 20% more than 2014. As IT companies prefer metros like Mumbai, Bengaluru and Chennai to expand their base due to their infrastructural base, they have consequently increased myriad of employment opportunities. This have helped in increasing the demand for residential spaces in these cities consequently increasing the price of flats in mumbai

As the corporates have shifted their interest towards cost effective commercial spaces, the vacancy level in Mumbai have increased up to 17% when compared to previous years. The quality of office space, parking areas, small floor plates, safety and maintenance in Nariman point have also contributed the shift from CBD to other business districts making the rentals decrease here in CBD. The competitive lease rentals and ease of connectivity in BKC and other suburbs have also resulted in this shift.

However though a particular location may witness a downswing in rental rates, the demand for commercial space across the country will never decrease. Not just the multinational companies, export firms, and bank are in look out for commercial space but also mid-sized and small-sized companies are also looking for office space to expand their business in several cities.