Emerging business districts in Mumbai's suburbs pin down office rents

Massive spurt in the supply of quality office spaces in the secondary business districts (SBDs) of Mumbai has pushed down its prime district office rentals 4% in the first quarter of 2015 compared with the same period last year, according to a survey by real estate consultancy firm Jones Lang LaSalle (JLL) of rental trends in global financial centres.

JLL report attributed the dip in the office rentals to the current crunch in availability of the right product at the right location, which has skewed the demand in favour of emerging SBDs in the suburbs, whose rents were way lower than the exorbitant rents in central business districts (CBDs) like Nariman Poin, Colaba, Lower Parel and Bandra Kurla Complex (BKC).

"One of the major reasons behind the fall in rentals is the shift in demand from Mumbai's CBD to the secondary business districts (SBDs) in its suburbs. The city's CBD is losing its sheen over the past five to six years and rentals here fell 3.4% in the last one year," said the JLL report authored by Ashutosh Limaye, national director – research, JLL India.

In BKC alone, rentals had slipped 3.5% from Rs 231 per square feet (sqft) per month to Rs 223 per sqft per month over the last one year due to huge migration by corporates to business districts in the city's suburb.

J C Sharma, managing director of Bangalore-based Sobha Developers, said the current phenomenon was reminiscent of the time when companies shifted from the CBD in Nariman Point to BKC and Lower Parel in the 2000s.

However, he does not see chartered accountants (CAs) and brokerage firms shifting their offices to far-off suburbs as they would like to be closer to Dalal Street and major corporate houses.

"Those who can afford it would still want to be in CBDs but newer businesses could occupy office spaces in SBDs," he said.

JLL also feels the fall in Mumbai CBD's rentals could be due to a short-term influence.
"The contrast in Mumbai's office market is that the city has 17% vacancy, which is not healthy, but at the same time, there is gentle appreciation seen in rentals owing to demand revival," it said.

Competitive rental rates and strong pipeline of supply were also responsible for the pickup in demand for office spaces in the suburbs. While per sqft per month rate for office space in BKC was Rs 223 in the first quarter of 2015, it was Rs 105-110 in SBD (north) and Rs 160-170 in SBD (central).

"There are many options to bargain for lower rentals among the SBDs thanks to the supply pipeline. Although BKC may be the new CBD, it has only a 10-11% share of the overall supply whereas rentals are lower in SBDs (central and north) and supply is high," said Limaye in his report.

Improved connectivity to suburbs by metro and other public transport system was also a reason for rise in demand for office spaces in those areas.

Other cities that have seen depreciation rentals in their CBDs are Brussels (4%), Paris (3%) Sao Paulo (5%) and Moscow (24%). London topped with 12% rise in rents followed by Tokyo at 7%. Shanghai, Hong Kong and New York were at 4% increase while Dubai was at 3% and Sydney at 1%.