By Mr. Ashutosh Limaye, JLL India
Mumbai
figures in top five cities that will add the maximum number of office buildings
in the next 18 months, according to a recent global survey done by JLL.
The
financial capital of India will add 16% of its current stock to grow its office
footprint. Since the Grade-A stock in 1Q15 stood at 96 million square feet, a
stock of about 15 million sq ft could be added in the next one and a half year,
if delays in construction are not accounted for.
However, given the poor track
record of developers in sticking to construction deadlines, the supply could be
around 12 million sq ft, which is also significant.
Interestingly,
in the JLL
survey
covering all office sub-markets in each city, emerging economies dominate the
top 10 city list with their office supply pipelines.
Shanghai comes on top with
42% of its current stock to be added in the next 18 months, followed by Mexico
City and Sao Paulo adding 22.5% each and Dubai adding 20%.
The other cities
from emerging economies that figure in the top 10 list include Beijing (12%),
Moscow (9%) and Hong Kong (5%).
 |
| Ashutosh Limaye JLL India |
Among
the mature economies, Singapore City will add 14%, London will add 6%, Sydney
and Paris will both add 5%, Frankfurt will add 2% and New York will add only 1%
of their current office stock.
Market Dynamics
|
Upcoming supply (in
million sq ft)
|
BKC Core
|
SBD Central
|
|||
|
2015 (2Q,3Q,4Q) - 2016
|
3.15
|
1.03
|
|||
|
2017 - 2019
|
1.49
|
0.88
|
|||
|
Source: JLL REIS 1Q15
|
What
needs to be noted about Mumbai is that the bulk of this projected 16% office
supply consists of buildings launched many years ago.
Before the global
financial crisis in 2008, a healthy demand existed for office spaces and
developers launched many new projects to cater to it.
Post-crisis,
work on these buildings slowed down or halted altogether as builders faced
dismal demand and recession. Only a few developers could change or scrap their
projects. The rest just decided to slow down. They are the ones who will finish
their projects in the next 18 months.
Moreover,
Mumbai has hardly seen any new launches in the last few years. This will have
implications in the next three years, with the supply pipeline drying up in the
right locations like BKC Core and SBD (Central).
On the other hand, peripheral
areas such as Thane and Navi Mumbai will see an oversupply, which will actually
be the supply that had got delayed due to the global financial crisis and would
get constructed during this time period.
About
14 million sq ft of office spaces that will be constructed between 2017 and
2019 will come up largely in the peripheral areas, which will not help enough
because they will be in the wrong locations.
Grade-A supply to come up between
2017 and 2019 in the Bandra Kurla Complex (BKC) core business district and
secondary business district (SBD)-Central will be just 2.37 million sq ft in an
ideal scenario, i.e. when delays do not occur in construction work, out of this
total expected supply of 14 mn sq ft.
This
will be a lower than the expected supply of 4.18 mn sq ft from these two
business districts in the next 18 months.
Realistically, however, the supply
can be expected to be only around 3.5 mn sq ft. Interestingly, the expected
demand for office spaces in these two areas in the same period will stand
around 5 mn sq ft and is expected to grow beyond 2019. In other words, the time
is right for developers to launch new commercial projects in the city and suburbs.
About the author...!
Mr. Ashutosh Limaye is National Director (Research) at JLL India
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