According to Colliers International’s latest report “India Office – Trends to watch for in 2015”, Mumbai’s office real estate market is expected to bounce back after 4 consecutive years of falling annual absorption, that resulted in an 8 million plus sqft of annual absorption in 2011 reduce to 3.3 million sqft in 2014, even lower than that in Pune and Chennai.
Despite a spurt in demand in the last quarter of the year, the total annual absorption of 3.12 million sqft in 2014 was 44% lower than that in 2013 which was 5.6 million.The main reasons for this are attributed to limited uptake from the IT/ITeS companies and the overall pessimism that was prevalent in the first half of the year leading to corporate postponing their decision to occupy more office space. There was also a decline in the average deal size. Over 60% of the transacted deals were in the area range of 5,000 to 20,000 sqft. The BFSI segment was the main contributor to this demand, with a 39% absorption share, followed by engineering (15%) and IT/ITeS (8%). Western suburbs, including locations like Andheri East, Goregaon and Malad, remained the most preferred locations among occupiers and had about a 32% share of the total absorption, followed by Thane (19%) and BKC (18%).
As per Nishit Agarwal, Associate Director – Office Services Mumbai, “With a stable government and a strong mandate to stimulate economic growth, demand for real estate sector will pick up over the next 12 to 18 months. Real estate transaction volumes are beginning to see a gradual turnaround and we are already witnessing a trend of moderate to healthy leasing and sales activity. E Commerce companies, dot com companies, apart from conventional BPO and Software Development, along with the BFSI and Pharma sectors will likely to be the major occupiers in 2015.”
The next six months are expected to witness a boost in Mumbai’s commercial demand from prospective tenants seeking quality office space. Lack of quality new Grade ‘A’ supply and increasing demand will benefit landlords holding on to inventory with higher specifications. While there will be an upward pressure on rentals for such properties, the overall rental values are expected to remain stable on account of the addition of 11 million sqft of new supply expected in the second half of 2015. This will negate the upward pressure on rentals, which are expected to remain stable.
2014 Summary: The first three quarters of the year remained quite dull for the Mumbai commercial office market with falling absorption and negligible new supply. However, the market revved up towards the end of the year as transaction volumes picked up. New supply added to the Mumbai market during 2014 was 3.3 million sq ft. This is well below the 5 year average of new annual supply of 8 million sq ft. Thus the net vacancy increased marginally. Approximately 7.4 million sqft of vacant Grade A office space was available for lease or sale in the Mumbai office market. Overall vacancy levels dropped to 14% in 2014 from 14.5% in 2013. Capital values remained largely stable across all micro-markets, the overall rents witnessed a 4% YoY increase in 2014 despite lower absorption levels due to limited new supply and lack of quality office space. Come 2015, Colliers International forecasts around 11 million sqft of new Grade ‘A’ office space to be ready for occupancy; most of which is expected to hit the market towards the end of the year. Rentals for high specification buildings will increase marginally, but overall rentals will remain stable due to the large upcoming inventory.
About Colliers International
Colliers International a global leader in commercial real estate services, with over 15,800 professionals operating out of more than 485 offices in 63 countries. A subsidiary of First Service Corporation, Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognised commercial real estate firm in the world.