Mumbai office space grew up in 2013
Jan 02, 2014
Source : The Times of India


MUMBAI: Despite the uncertain economic conditions, absorption of office spaces in Mumbai rose by 4.4% y/y to 7 million square feet in 2013, as against the 6.7 million square feet in 2012. As a result, vacancy fell to 22.9% in 2013 from 24% in 2012. Nearly 7.5 million square feet of new supply was added to Mumbai’s office stock in 2013 – an increase of 8.8% y/y compared to the 18% growth in stock in 2012. The total current office stock in Mumbai stands at 91 million square feet.

While average growth of commercial real estate stock in Mumbai since 2004 to date has been 18.5% overall, this growth fell to 8.8% y/y during 2013. However, two facts help put these readings into the right perspective:

  1. During this nine-year period, office stock in Mumbai has risen by more than five times, which would naturally lower incremental growth.
  2. Towards the middle of 2013, growth in stock of office space in Mumbai was still the fourth-highest among the major cities of the world. Also, the city’s office stock vacancy dropped to around 22.9% in 2013, as against 24% in the previous year.

MumbaiThese factors suggest that while the growth trajectory has lowered, the growth rate has only stabilised and shows resilience.

Capital values and rental values have risen marginally, with the former rising slightly faster than the latter. This rightly reflects the dichotomy that Indian economy faces currently – that of low demand (absorption) against a rising inflation. While growth in capital values was relatively stronger, some of it could merely be a pass-through of the rising input costs that developers have to bear. Construction costs in Mumbai have risen by around 24% over the last four years. The Western Suburbs and Thane-Navi Mumbai witnessed the maximum rise in capital and rental values in 2013. 

Greater dispersion of office space across various sub-markets

As of end-2013, Mumbai continues to have the largest stock of office spaces with 25% of the total office space across the top seven cities.

Like in most other cities, Mumbai has also witnessed erosion of market share of the Commercial Business Districts (CBD), with more and more companies favouring suburban locations. Over the last 10 years until end-2013, the share of Mumbai’s CBD has decreased from occupying 30% of the city’s total office space in Mumbai to merely 5% as of 4Q-2013. While the trend itself is common across various cities in India (with differing severity), what is uncommon in Mumbai’s case is that that its CBDs loss of share has been a gain for almost every other sub-market in the city.

With this level of dispersion, the city’s office landscape offers a level of variety that suits the preferences of diverse sets of industries. Where Mumbai’s largest office constituents comprised of Banking, Financial and Insurance (BFSI) sectors in the past, it is now seeing an increasing presence of the IT-ITES sector – known for its quest for low-cost and emerging destinations. BFSI occupancy share in Mumbai has fallen considerably, from over 50% in 2007 to around 27% currently, while the share of sectors such as IT services, Manufacturing, Pharma, Media / Entertainment and Professional Services has increased.

This transition presents a unique opportunity for the city to attract sectors that were hitherto under-represented. However, it also exposes the immediate need for the city to plan out significant improvement in its infrastructure that could enable faster mobility of people between various sub-markets. This has, in fact, been happening over the past decade, and Mumbai’s commercial real estate developers have responded with an increasing supply of stock in emerging locations such as Thane and Navi Mumbai, the Eastern Suburbs, etc.

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