Mumbai’s Key Office Real Estate Trends Leading up to 2020..!

Mumbai’s Key Office Real Estate Trends Leading up to 2020..!

  by Mr. Karan Singh Sodi, JLL India

On the back of declining interest in the traditional central business district (CBD) of Mumbai, some corporations are establishing their front-office functions in the secondary business districts (SBDs) and moving back-office activities to the suburban markets. 

Leading up to 2020, domestic corporations are expected to move up the value chain and look to give their staff more attractive working environments. This will further fuel the relocation from CBD to alternate business districts.

The SBDs have newer and better-quality buildings and look attractive but there is also a large and growing scarcity of carparks in SBD Central and SBD North, which is yet to be resolved. 

The government plans to support development of peripheral areas of Mumbai, with the objective of improving efficiency of labour by locating businesses closer to suburban residential clusters. This could help ease the peak hour traffic congestion and over-crowded transit infrastructure.

The city’s office market is also seeing more mixed-use projects in recent years, with retail components such as F&B outlets and supermarkets. 

Occupiers setting up offices are particularly drawn to developers with a multi-city presence, and those with private equity funding, in view of greater scalability, reliability and service levels. 

IT companies demand large land parcels, and are also gravitating towards suburban locations due to lack of available space in built-up areas.

How Mumbai’s micro-markets would evolve by 2020..!

·The CBD has seen its vacancy rise up to 9% in 2016 from 2% in 2007. However, established Indian corporates and public sector companies are likely to remain major occupiers here. Tenants will be able to upgrade to better buildings at competitive rentals on the back of relocations out of the CBD.

However, a few months ago, DBS Bank moved its office from one building to another within the CBD. Moreover, the government has conceptualized a rejuvenation plan that will drive the redevelopment of old buildings as well as new infrastructure projects, which will improve CBD’s connectivity with rest of the city. The total office stock is ~6 mn sft.

·SBD BKC is the de-facto CBD and its biggest strengths are its well-planned development, central location and presence of high-profile occupiers. Continued government investment in infrastructure, in and around SBD BKC, provides a strong case for this location moving towards 2020. The total office stock is nearly15 mn sq. ft.

SBD North is home to Mumbai’s international airport and phase-I of the Mumbai metro. This office district is attractive due to its cost effectiveness and east-west as well as north-south connectivity. However, car park scarcity woes remain an issue, as with SBD Central. 

The total stock is about 20 mn sq. ft, the most office space that any sub-market houses and with many flexible small office space options.

SBD Central

The erstwhile ‘mill district’ is witness to defunct mills getting refurbished or converted into grade-A office developments and plush residential towers. The rents are 2/3rd of those in CBD and the total stock of office space is about 13.5 mn sq. ft.

 Western suburbs The sub-market exhibits a perfect blend of residential and retail developments, hotels, grade-A offices and exhibition centres. 

The projects here offer ample car parking and wide floor plates. Rents in the sub-market are only a third of those in the CBD. The total stock is about 15.5 mn sq. ft. A clear uptrend in rents has been observed over recent quarters.

Eastern suburbs

The sub-market houses build-to-suit buildings, business parks and an IT SEZ. It was the first to introduce a concept of ‘walk to work’. 

The strategic location, availability of land, upcoming residential developments and metro rail infrastructure projects are likely to boost the demand for office space as well as financial indicators. The total stock is about 14.5 mn sq. ft.

Navi Mumbai is slated to become Mumbai’s IT and FinTech corridor, and its largest grade-A office market by 2020. 

The area is expected to benefit significantly from the completion of the second airport (estimated to be operational by 2019) located nearby, as well as the Navi Mumbai metro system (estimated to be completed by 2020).

However, the district is grappling with problems arising from rapid urbanization and haphazard developments. The stock here is about17.5 mn sq. ft.

Thane

These suburban locations have evolved from BPO and industrial markets into established back-office districts due to clustered talent pools and availability of grade-A developments. 

They have also attracted some front-office consolidations in recent years. Sustained affordability and quality infrastructure will ensure these markets’ long-term relevance. The stock here is about 6 mn sq. ft.

Overall, rental appreciation is expected around 2020 in the SBDs due to falling vacancy levels, and in the suburban markets due to a low base effect.

 On the other hand, CBD will see continued decline in rents – barring grade-A properties – due to scarcity of both large floor plates and modern amenities.

‘Strategy 2020’

For Occupiers..!

 Occupiers can plan their future space requirements and consolidate multiple offices at a single site with good connectivity to achieve operational efficiencies, reduce costs and address growth. 

Offices in well-located upcoming prime assets in Mumbai are likely to get pre-committed quickly; hence, awareness is crucial. 

Occupiers need to commit early to gain first-mover advantage in new buildings. They are advised to invest in occupancy planning and move management to ensure optimal office relocations for their organization.

For Investors and Developers..!

 It will also be crucial for these stakeholders to anticipate tenants’ needs – with regards to office location, specifications and quality. 

The current grade-A office vacancy rate stands around 18%, with most of the vacancy being in stock that fails to meet the requirements of end-users. The vacancy in superior grade-A stock, however, is 9.5% only.

 About the author.

Mr. Karan Singh Sodi, Managing Director - Mumbai, JLL India

For media contacts

Arun Chitnis
Head - Corporate Communications & Media Relations
JLL India
Pune 411001.
Tel: (020) 40196100 Fax: (020) 40196101
Mob: 91 9657129999
Website: www.joneslanglasalle.co.in
Blog: www.joneslanglasalleblog.com/realestatecompass

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