Real estate stock of office premises in Mumbai has been going through a slump for the last 14 financial quarters. Of the current 6.7 crore sq ft office space in the city, 1.3 crore sq ft (almost 19%) is lying vacant, revealed a study by Jones Lang LaSalle for the period January-June 2011.
The current scenario is in stark contrast to the boom in 2007, when just 2% of office space was vacant and rentals touched an all-time high.
“After peaking in 2008, Mumbai office rentals fell for two consecutive years and are currently 38% below the peak,” said Ramesh Nair, Managing Director, West India, Jones Lang LaSalle India.
The two quarters of 2011 constituted a record first half for the office real estate market, with 55 lakh sq ft of office space coming into the market. The study revealed that rentals did not increase because Mumbai’s office property market is in the midst of a major supply cycle that is focused mainly in the central Mumbai, western suburbs, Thane and Navi Mumbai. A number of tenants are taking advantage of the situation to relocate or consolidate.
The office space market saw positive sentiment and yield compression despite the high vacancy and lack of liquidity. The yield levels have currently stabilised at 11%.
“Despite high interest and inflation, the office market fundamentals continue to improve and this was assisted by strong economic performance, improving property market dynamics and hike in corporate hiring,” said Nair.
Many Indian and multinational companies have made significant fresh recruitments over the last few months, contributing to the office space take-up in Mumbai.
Meanwhile, due to the excess supply of office real estate, only a handful of new commercial property projects have been launched in Mumbai over the last two quarters.
The self-correction phase has started with developers slowing down the construction of their commercial projects and converting some of them to residential.
Nair predicts that “demand for office space should pick up over the next 12 months. However, Mumbai will see a lot of new supply during the same period as most of the projects that were launched before the global financial crisis will reach completion… The market is expected to reach the 2008 peak only by 2014.”
