Mumbai rental market hit hard

The global economic meltdown has hit the once-booming commercial lease rental market in Mumbai. Rents have dropped by 20% to 25% on an average in the last quarter of 2008. In some prime commercial properties in the erstwhile mill land enclave of Central Mumbai, the drop is 50%.

It was barely six months ago that the London headquartered Barclays Bank shook the commercial lease rental market when it paid a record-breaking rent of Rs 725 a square feet per month for a 15,000 square feet office space in Worli’s CeeJay House, whose landlord is aviation minister Praful Patel. It was the highest commercial rental deal in India.

But in the past couple of months, all the prime commercial business districts (CBD) like Nariman Point, Bandra-Kurla Complex and Parel have been affected. In fact, Nariman Point, considered to be India’s premier CBD, has seen vacancy levels in grade one buildings rise to 11%, said sources tracking the rental market. Till recently, the vacancy level was just 2% in this area. Uptill 2005, 30% of offices here were empty.

The lease rentals in Nariman Point are currently hovering around Rs 375 to Rs 400 per square feet a month in premium buildings as compared to Rs 475-Rs 500 nine months ago. Rentals in grade C buildings hardly command Rs 250 a square feet, according to market sources.

Said Kaustuv Roy, director Transaction Services of global property consultancy firm, Cushman & Wakefield, “Since September 2008, the overall economic conditions have been rather volatile and with a visible decline in demand for commercial space across the city. Many corporates have postponed their expansion decisions. This has affected traditionally strong markets like Nariman Point and Central Mumbai where we have noticed a drop of 20% and 13% respectively.”

Real estate sources pointed out that a developer of a commercial project in Parel, which was leasing out office space at the rate of Rs 300 to Rs 350 a square feet a month four months ago, is now struggling to sign deals as low as Rs 150 to Rs 190 a square feet. “Several big companies and corporates that had taken office space in this complex at high rates have now renegotiated the price with the developer and brought them down substantially. The developer is getting jittery and is ready to cut down on its margins,” a source revealed.

Pranay Vakil, chairman of Knight Frank India, said rentals have fallen and that there have been few transactions in this segment. “The gap between the asking rental and the final rental has also gone up. Somebody may demand Rs 300 a square feet and settle for Rs 225. Earlier, there was a spurt in demand. But we are back to the rental prices seen two-and-a-half years ago,” he said.

In the Bandra-Kurla Complex too, there has been a drop from an average of Rs 400 a square feet six to nine months ago to Rs 275-Rs 300 a square feet at present. But, according to Roy, the largest fall is noticed in Andheri where the drop has been 25%. “This is attributed to a possible over supply scenario that this micro market seems to be heading towards. With an expected supply of 4 million square feet in the next 6-12 months, the location is feeling the heat current of suppressed demand. We will continue to see this trend well into the early 2009,” he said.

A property expert, not wishing to be identified, claimed that desperate developers putting up commercial buildings, are now willing to sell their projects outright instead of giving them out on lease as has been the trend so far.

Explaining the high rentals that the city witnessed between 2006 and mid- 2008, the expert said rentals were equally high during the 1994 property boom. But, subsequently, not many companies could afford them and were forced to move out, he said.

One Comment

  1. sandeep
    Posted January 23, 2009 at 1:34 pm | Permalink

    looking for renting or lease my industrial plot/shet measriong more than 30000 sq/ft in delhi ncr, india

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