A less expensive Mumbai

India’s financial capital has emerged as the sixth most expensive office location in the world, according to Office Space Across the World 2009, a report by global property consultants Cushman & Wakefield.

Nariman Point, the central business district (CBD) of Mumbai, slipped two positions from last year’s fourth rank, giving way to Moscow (fourth) and Dubai (fifth).

The study compares office occupancy costs in 202 key locations in 57 countries around the world. After nine years, London has lost its premier status to Hong Kong as the world’s most expensive office location as rental values corrected by as much as 23% at West End.

Worli in Mumbai and Connaught Place in New Delhi, the capital’s CBD, took 10th and 12th place respectively as the most expensive office locations in the world.

With the global economy slowing down, many corporates eased or postponed their expansion plans, resulting in subdued demand for office space. Mumbai witnessed an overall vacancy of about 12% in 2008, which is significantly higher than the 4-5% vacancy recorded in 2007.

Vacancy in Mumbai’s CBD inched closer to 5% in 2008, compare to the 1-2% in 2007 on account of restrained demand and low renewals of expired lease agreements. This in turn saw Nariman Point rentals drop by as much as 9%.

Worli witnessed a correction of approximately 13% in rental rates in 2008 over the previous year of 2007. In 2007, Worli grew by 33% over 2006, largely due to the limited supply. This location, which is fast emerging as a hub for banking and finance, IT/ITeS, and media, among others, has also seen a drop in activity and one reason put forward is that its rentals had reached very high levels. Worli recorded vacancies of approximately 7% in 2008 as against 2% in 2007.

Connaught Place witnessed vacancies of 3-4% and emerged as the 12th most expensive office location, slipping two positions from last year.

Kaustuv Roy, executive director at Cushman & Wakefield India, said the current phase of correction is making rentals in key Indian cities more cost effective. “Increased vacancy as well as subdued demand across most micro markets has made it difficult for landlords to maintain their previous high rentals,” he added.

In Mumbai, the IT/ITeS and BFSI (banking, financial services, and insurance) sectors remained the principal demand drivers while there was an increased demand from sectors like pharmaceuticals, aviation, and infrastructure/real estate developers, even though their contribution to overall demand was marginal.
Select central locations in Mumbai and in south New Delhi witnessed 13% and 12% annual correction respectively. These corrections came in response to the weakening business sentiment and non-sustainability of high price points achieved during previous years.