Commercial transactions in Nariman Point nosedive

While residential realty lags the race in the city, commercial real estate has surpassed the transaction levels recorded in FY10 already.

But the biggest surprise comes from the heart of the central business district, Nariman Point, which has seen a fall in absorption in office space consumption. It’s the same with areas like Ballard Estate, Cuffe Parade and Fort. Nariman Point saw an absorption rate of a mere 0.37% in FY11 compared to 1.95% in the previous year.

Anshul Jain, CEO-India for international property consultants, DTZ, says, “As far as demand is concerned, 6 mn sq ft was transacted in Mumbai in 2009 compared to 8 mn sq ft in CY2010 — a jump of 30-35% year on year. In 2010, transactions in Nariman Point have come down; in fact, the vacancy is more than 10% for the first time in a decade. The maximum vacancy Nariman Point has reported would be around 2%. Even the rents have fallen by 10-15% to Rs275-300 per sq ft per month compared to Rs350 per sq ft per month earlier for the Grade A space.”

Ramesh Nair, managing director-West India, for international property consultants, Jones Lang LaSalle India, says, “In the last three months, some transactions have happened in Nariman Point, but if you look at the entire central business district, the vacancy level is higher.” In 2008, the BMC had issued notices to office occupiers of increase in property tax by 300-600%. 

The Nariman Point Association challenged the BMC’s move. The verdict is pending. Though the present occupants are not paying the increased tax amount, if the jurisdiction is in the BMC’s favour, it would act as further dampener for buyers.

Samantak Das, national head-research, Knight Frank India, writes, “A total of 6.83 mn sq ft of office space was transacted in this period (FY11) of which around 76% comprised lease transactions.”

Though the average rate of outright sale value has increased this year, it’s a downward movement for leases. The average rate of transactions recorded in FY11 is Rs14,000 per sq ft compared to Rs13,000 per sq ft last year. But buyers have been able to pull off lower rate transactions by choosing far flung areas in the lease market with an average rate of Rs95 per sq ft per month compared to Rs105 per sq ft per month in FY10.

Jain adds, “The reason that the average rent has come down is because most of the big-ticket transactions are happening in the suburbs, where the rates are Rs60-80 per sq ft per month, but in Bandra-Kurla Complex and further north wards, the deals are of 10,000 sq ft and smaller sizes. In fact, rents in some areas have marginally picked up by 5-10% in CY2010 as compared to the previous year.”

Das points, “It is the peripheral business district like Thane and Navi Mumbai where the absorption is highest as rentals are cheaper and good buildings are available. It has seen the highest absorption at 33% of the entire office space market share. It is followed by the western suburban business district like Bandra, Kalina, Goregaon, Andheri, malad and Jogeshwari. In Mumbai, off late, the number of enquirers and actual transactions is certainly moving up and it is the Information Technology and IT-enabled services (IT/ITES) which is buying more floor plates.”

Also lesses who are taking up more than 50,000-60,000 sq ft are signing nine-year leases and those who are occupying 5000-15,000 sq ft are signing five-year ones, says Nair.

In fact the financial capital of the country has witnessed a drop of 19% year on year in office space consumption by Banking and Financial Services Industry (BFSI) which till now was the highest space aggregator, consuming only 27% of entire commercial segment. On the other hand IT/ITES sector has increased its exposure to 36.6% becoming the highest space grosser in office space segment in comparison to 20.3% last year.

Though three months are yet to pass by, Das says apart from Pune, now Mumbai is also becoming an IT/ITES destination. For example, L&T Infotech leased 450,000 sq ft at Mindspace Airoli in Q2FY11. The vacancy in the city for office space is around 10-15% in the premium business districts.