Mumbai’s Western Suburbs See Highest Increase In Office Rentals, CBD Highest Decline


Ashutosh Limaye

The gross average rents in Mumbai (including Thane and Navi Mumbai) rose by 1.3% y-o-y, as of 3Q16. In Mumbai, the western suburbs’ micro-market registered the highest growth in rentals at 2.1% followed by the eastern suburbs at 1.7%, SBD BKC at 1.5%, SBD Central at 1.4% and SBD North at 1.2%. CBD rents continued their downward journey and declined by 1.6%. Outside Mumbai city, rentals rose in Thane by 2.5% and Navi Mumbai by 0.7%,

Showing faith in India’s economic growth, corporate occupiers have been in expansionary mode. However, there is a lack of relevant supply at ideal locations in Mumbai. Due to this, some companies wanting to expand are taking up relevant supply at ideal locations in both the eastern and western suburbs. Not too long ago, Bandra Kurla Complex (now the de-facto CBD of the city) and the other SBDs had first seen such a movement of occupiers from the CBD.

The suburbs have been cheaper, rent-wise, than the established office districts. Many back offices have preferred these locations over the years, due to their cost arbitrage. Interestingly, a foreign pharma company had recently carried out a large transaction in a grade-A building in the western suburbs. And it was not just a move to set up their back office here but their India headquarters.

Suburbs could see more such developments in the future. With big infrastructure projects like the coastal road and several phases of metro rail in the pipeline; suburbs show promise of better connectivity in the years to come. They have another advantage of being closer to residential areas. We could see more corporate occupiers moving in if relevant supply comes up here.

Rents may continue to increase in these micro-markets and, especially so, after connectivity has improved. While the western suburbs enjoy close proximity to the airport, the eastern suburbs enjoy proximity to Thane and Navi Mumbai. CBD, on the other hand, will continue to see further correction in rents. The city’s CBD has been losing its sheen over the past five to six years. As this micro-market has a limited supply of quality office spaces, corporate occupiers have been moving to SBDs.

Despite the highest increase in rentals recorded in Thane, the micro-market continues to offer very affordable rentals. Along with Navi Mumbai, which is the most affordable micro-market in the Mumbai metropolitan region with grade-A office space availability, Thane continues to be the preferred destination for IT/ ITeS players and back office operations of banking, financial services and insurance (BFSI) players as cheaper rentals are an important business priority for them.

Business process outsourcing and knowledge process outsourcing centres also dominate these two micro-markets, which may see further appreciation in their respective rentals in the future, until they become non-feasible for the current occupier profile. If the state government improves connectivity and takes up more reforms, however, additional land parcels in the peripheral areas would open up for residential development and existing office districts could then see further expansion.

(Ashutosh Limaye, National Director – Research, JLL India)

 

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

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