MUMBAI: Vacant commercial spaces in Mumbai have fallen in 2013 for the first time since 2007. Lease rentals and capital values for offices across the financial capital's commercial districts, barring Nariman Point have also seen an uptick for the first time after dropping for five consecutive years.
Despite uncertain economic conditions, absorption of office spaces or the amount of space taken over by new occupants, in Mumbai, rose 4.4% to 7 million sq ft in 2013, compared to 6.7 million sq ft in 2012. As a result, vacancy levels fell to 22.9% in 2013 from 24% in the previous year, according to a report by the real-estate consultant, Jones Lang LaSalle India.
These show that demand for commercial space in Mumbai has resumed its uptrend again, albeit at a slow pace. One of the likely reasons is a fall in rentals after years of low demand.
"The market is witnessing stabilised demand for office spaces and absorption has been increasing steadily as occupiers see this as an opportunity , given that the rentals are at 2006 levels. Supply of commercial properties is now getting restricted as the number of launches in this segment has considerably reduced since 2009," said Ramesh Nair, chief operating officer at Jones Lang LaSalle India.
During 2013, Mumbai saw addition of nearly 7.5 million sq ft of office space. It increased by 8.8% from the previous year against the 18% growth in office space inventory in 2012. The total current office stock in Mumbai stands at 91 million sq ft, said the report. Both capital and rental values have risen marginally during the year, with the former rising slightly faster than the latter.
However, according to developers, the rise in capital values can be partially attributed to increasing input cost that is being passed on to consumers. Construction costs in Mumbai have risen by around 24% over the past four years. "Capital values have gone up marginally, but it offsets the rise in input cost.
Current capital values are not adjusted for inflation of last five years," said Rasesh Kanakia, chairman of Kanakia Group, which is currently developing 1.5 million sq ft office spaces. "Now with slight improvement in absorption, we hope that prices can increase, not immediately, but in the next two years." At the city level, capital values for commercial spaces in Mumbai rose by 3.2% from a year earlier, led by the western suburbs that include Andheri, Goregaon, Malad and the Navi Mumbai-Thane belt, where growth was 7% and 6%, respectively.
On the same level, office space rents in Mumbai appreciated by around 2.8% year-over-year , led by a 5% rise in the western suburbs and 4.5% growth in Navi Mumbai and Thane. "Right pricing, configurations, and location are helping in conversion of pent-up demand. The situation has improved for sure as the inventory has started to move against a scenario of no transactions at all," said Srinivasan Gopalan, CFO, Wadhwa Group. He added that the company managed to sell 75,000 sq ft of office space, mainly to end users at its smaller-configuration project 'One BKC' in the Bandra-Kurla Complex on the day of its launch three weeks ago.