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Sep 20, 2013, 02.57 PM IST | Source: Jones Lang LaSalle

The changing occupier universe of Mumbai's office market

India's financial capital and largest urban agglomeration, the country's biggest income tax-generating city and location of its costliest real estate, home to India's corporate world and Bollywood, fashion capital, media and entertainment centre, Gateway to India!

India's financial capital and largest urban agglomeration, the country's biggest income tax-generating city and location of its costliest real estate, home to India's corporate world and Bollywood, fashion capital, media and entertainment centre, Gateway to India! Mumbai claims all these adjectives and deserves each one.

It is also India's largest office market, with 7.82 million sqm of Grade A office space, 5.93 million sqm of which is occupied, as of December 2012. By contrast, two of India's other large office markets, Bangalore and NCR-Delhi, each have a total stock of Grade A office space of 6.31 and 5.78 million sqm respectively. With 3.11 million sqm of office space currently under construction, by 2015, Mumbai will be the first Indian city to join a handful of cities worldwide that have 10 million sqm of office space (crossing over 100 million sq ft in 2014), which is no mean feat!


Newer Office Districts in Residential Suburbs & Industrial Areas

Over the years, Mumbai's office market has grown in terms of both the densification of existing business districts and the emergence of new ones. The city's historic Central Business District (CBD) was largely saturated with 0.53 million sqm of office space. The Bandra Kurla Complex then took over as the new CBD, with 0.74 million sqm of space. With South Central Mumbai’s 1.0 million sqm of space, the island city now offers 2.27 million sqm or about 30% of Mumbai's total office space.


The "non-CBD" locations (secondary and suburban business districts) are home to around 70% of Mumbai's office space and will have a growing role in determining the performance of the city’s office market going forward.
 

Co-relation Between Occupants' Businesses and Choice Of Office Location

The Banking, Financial Services and Insurance (BFSI) sector is historically the most dominant occupant of space in Mumbai, taking up between 21% and 52% of the total from 2007-12. The supremacy of this sector has been overshadowed by the IT Services sector in the past three years as this new sector emerged as a powerful occupant.

Three other sectors, namely Healthcare, Professional Services and Transportation Warehousing, have also taken up space steadily, completing the group of the top five occupants. It is interesting to note that various sectors prefer specific submarkets and that they drive the demand-rent dynamics on their respective "home turf". BFSI companies remain partial to the CBD-South, the SBD-BKC and the SBD-Central districts, all of which are functionally island city areas, as their higher affordability matches the higher rents asked in these prime districts.

IT Services, a highly cost-sensitive industry, remains concentrated in suburban districts, while Healthcare has spread itself evenly between prime and suburban locations, and Professional Services companies have consolidated their offices in SBD-Central, taking advantage of lower rents caused by oversupply. Transportation-Warehousing companies have made suburban districts their home, as is the case with the Consumer Goods & Services, Media & Entertainment, Manufacturing and Real Estate & Construction sectors.
 

Time to Recognise the Role of IT Services Companies


The role of IT Services companies in suburban Mumbai's emergence as an office destination makes the city a good case study. Mumbai was always the costliest office market in India and high rents were the strongest deterrent for IT/ITeS occupiers to set up centres in Mumbai, despite the city's abundant pool of relevant, top-class talent.


A few of Mumbai's large and reputable developers had a vision for the suburbs, where they had land banks, and risked building top quality office blocks that met the needs of IT Services companies.


As part of heavily populated residential areas, IT Services companies found value by being close to the talent they employ. The absorption of office space in the island city reached 0.71 million sqm in 2010, 2011 and 2012 together, while, during the same period, the suburban locations accounted for 1.45 million sqm. This indicates a shift in the centre of gravity towards the suburbs in terms of Mumbai’s office market, with IT Services companies the driving force behind the move.

 

Vision and Facilitation From City Authorities and Developers

Another contributing factor to Mumbai's improving performance in leasing office space to this sector was an arrangement by which occupiers were able to merge their front and back office functions in an IT-designated office block, creating a win-win situation for tenants and landlords. Under this arrangement, office blocks could be constructed in the IT building category and were awarded Floor Area Ratio incentives by city agencies that enabled landlords to construct twice the area otherwise permitted. Landlords could thus pass on the benefits gained by reducing their asking rents and the corporate world responded by leasing large spaces.


Mumbai's concerns about the majority of office space on offer being at rents that were higher than IT/ITeS companies could afford, as well as issues related to the lack of quality supply in areas that were affordable for these companies, have been addressed over the past three years with the completion of quality office space in the suburbs and the satellite cities of Thane and Navi Mumbai, all of which has been absorbed fairly quickly.


While suburban Mumbai still has the highest rents compared to IT/ ITeS districts in other cities, the availability of top-quality space has kept rents in check and tenants find value in leasing space in these areas, even at a higher rent, as the locations have excellent infrastructure and transportation facilities, and are close to heavily populated residential districts, enabling the companies to attract and retain good talent, and to save on transportation costs (their third highest expense after talent and real estate).


Thane and Navi Mumbai still have a long road ahead in order to establish themselves as premier IT/ITeS districts, but their long-term potential is good, given their ability to offer competitive rents and the on-going densification of surrounding residential areas. Mumbai's second airport in Navi Mumbai will certainly add to its strengths over the next five years and we envisage this becoming Mumbai's largest IT/ITeS district.
 

Following the Rise of IT Services Making Mumbai The Most Diversified Office Market

Mumbai's dominant BFSI sector, along with strong Professional Services and Media & Entertainment sectors, as well as the headquarters of the Manufacturing sector, have hogged the limelight for some time and, while their importance to and influence over Mumbai's office market is undisputed, the growing contribution of the IT/ITeS sector has largely gone unnoticed. It is now time to recognise this contribution and applaud the sector’s climb to become the second-largest occupier base in a city that is India’s largest office market in terms of both scale and value.

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Mumbai
Capital Values Rate/Sq ft (INR)
Aajiwali
3000 - 5000
Ambernath
3000 - 5000
Badlapur
1000 - 3000
Bhandup (West)
11000 - 13000
Chembur (East)
15000 - 17000
Chembur (West)
11000 - 14000
Dombivali (East)
4000 - 6000
Ghatkopar
13000 - 15000
Heeranandani Gardens Estate - Powai
25000 - 30000
Hiranandani Gardens Estate - Powai
25000 - 30000
Kalyan (East)
2000 - 4000
Kalyan( West)
3000 - 5000
Karjat
1000 - 3000
Khandala
8000 - 10000
Kharegaon
5000 - 7000
King Circle
17000 - 28000
LBS Marg
12000 - 15000
Lonavala
3000 - 5000
Mulund (East)
11000 - 14000
Mulund (West)
11000 - 14000
Mumbai Nasik Highway
3000 - 6000
Powai
15000 - 17000
Senapati Bhagath Singh Road
3000 - 5000
Sion (East)
18000 - 21000
Sion (West)
17000 - 22000
Tilak Nagar
12000 - 22000
Ulhasnagar
3000 - 5000
Vikhroli
11000 - 14000
4 Bunglows
17000 - 28000
7 Bunglows
13000 - 23000
Chandivali
10000 - 15000
Malad (East)
12000 - 14000
Versova
21000 - 24000
Airoli
4000 - 8000
Belapur
6000 - 9000
Ghansoli
6000 - 8000
Kalamboli
4000 - 9000
Kamothe
4000 - 6000
Nerul
7000 - 10000
Palm Beach Road
12000 - 15000
Panvel
3000 - 6000
Sanpada
8000 - 10000
Sea Woods
8000 - 10000
Ulwe
3000 - 6000
Uran
3000 - 6000
Vashi
9000 - 12000
Altamount Road
62000 - 72000
Breach Candy
62000 - 74000
Chowpathy
48000 - 58000
Colaba
42000 - 46000
Cuffe Parade
67000 - 69000
Dadar(East)
32000 - 34000
Dadar(West)
29000 - 32000
Lower Parel
32000 - 34000
Mahalaxmi
38000 - 40000
Malabar Hills
68000 - 75000
Mumbai Central
23000 - 34000
Napean Sea Road
66000 - 74000
Parel
26000 - 34000
Prabhadevi
37000 - 39000
Tardeo
41000 - 49000
Worli
36000 - 41000
Andheri (West)
18000 - 20000
Andheri(East)
15000 - 17000
Bevarly Park
5000 - 7000
Bhayander (East)
5000 - 6000
Bhayander (West)
3000 - 5000
Boisar
1000 - 3000
Borivali (East)
11000 - 13000
Borivali (West)
10000 - 14000
Dahisar
4000 - 8000
Goregaon (East)
13000 - 17000
Goregaon (West)
12000 - 14000
Kandivali (East)
12000 - 14000
Kandiwali (West)
11000 - 12000
Malad(West)
9000 - 14000
Mira Road
5000 - 7000
Naigaon
1000 - 4000
Nala Sopara (Eastt)
3000 - 5000
Nalasopara (West)
3000 - 5000
Poonam Nagar
6000 - 8000
Shanti Nagar
7000 - 9000
Shrishti
6000 - 9000
Vasai Road
1200 - 4000
Virar
1000 - 3000
Note: Price trend are based on asking rate and not necessarily on the transaction date
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