Builders waive office space rentals, 'a la' malls

Tired of waiting for months for occupants to pour in, commercial real estate developers in Mumbai have come up with a new trick to lure potential customers – rent-free period.

“If a builder knows that your lease expires in the next three months to one year, he is coming with an offer – why don’t you shift now and don’t pay me any rent till your lease expires in the previous place?” said the CEO of a company that has received one such offer.

The trend, in fact, had started with mall owners, who were faced with low occupancy for months and started offering a rent-free period to get tenants in.

But it might just do the job for the developers, who are sitting on huge inventory. Depending on the lease contract, the company that decides to shift gets to save a few months’ rent, while for the builder, it is a small sacrifice to ensure occupancy for the next 3-5 years.

“The stretch between Lower Parel and Mahalaxmi alone has about 25 million square feet area lying vacant. With this kind of inventory, the rent-free option is the last resort,” said a real estate expert, requesting anonymity.

But such waivers are not limited only to Central Mumbai, even Goregaon, Andheri and other areas are witnessing the trend.

Another industry expert said the Mumbai Metropolitan Region has around 44 million square feet either ready or under construction. “At today’s absorption rate, it will take at least 40-45 months for these places to get occupied. And that is bearing in mind that no new construction takes place in the mean time.”

The companies first started by reducing rental charges. For instance, in the Nariman Point area, a prime real estate location, the price has come down from Rs 350 per square feet to Rs 200 square feet in the last two years, according to brokers. But even this hasn’t quite got the tenants in.

Another real estate expert said the trend is not limited to Mumbai. “We have seen builders offer rent-free period even in Kolkata. And even there, a huge inventory pile-up is the reason for such offers.”

A Cushman & Wakefield survey points out that the office space absorption across eight cities has fallen 23% in the past one year.
Analysts believe it will take at least two more years for the demand-supply mismatch to be ironed out. Till then, we are likely to see more such innovative offers from the builders.