Demand remains muted over sixth consecutive quarter

Mumbai, October 31, 2014 – The Mumbai office market saw no major change in the office market scenario. Overall, transaction volumes decreased and the office market witnessed only 0.35 million sq. ft. of office absorption bringing the YTD absorption to 1.45 million sq. ft., which is approximately one third of last year’s absorption figure.

New entrants were the primary demand driver this quarter. BFSI continued to be the dominant sector leasing office space in Mumbai. There was also some demand from manufacturing companies who took rented smaller office spaces in locations like Kurla, Vikroli, Airoli and Andheri East. IT/ITeS absorption remained the lowest during this quarter.

A number of IT/ITeS companies whose leases are about to expire in coming quarters are undecided due to a critical policy decision from the state government about the continuation of the Maharashtra IT/ITeS policy.The tenure of the policy came to an end in August 2014, and it is at the discretion of the state government to continue the benefits to IT/ITeS companies, such as the waiver on stamp duty, etc. Construction continues to remain stagnant and the city witnessed completion of only 0.71 million sq. ft. of office space. The projects that were completed this quarter include Business Bay, Lotus Star, Raheja Prime and Birla Aurora. However, there were though, four new buildings that are proposed which will add add approximately 2.67 million sq. ft. to the city’s Grade A inventory by 2017. These projects include Lodha Codename Business Class in Thane, L & T Seawoods and Raheja District – II in Navi Mumbai, Nahur IT Park and Art Guild House in the eastern suburbs. Currently, Rental Values approximately, 7.75 million sq. ft. of vacant Grade A office space is available for lease or sale in the Mumbai office market. Approximately 40% of this vacant stock is located in the Andheri and Lower Parel markets.

Overall vacancy rates remained almost stable while select micro-markets like Andheri, Lower Parel and Worli witnessed marginal increases in vacancy levels because of the addition of new supply. While capital values have remained largely stable across all the micro-markets in 3Q 2014 owing to cautious demand, the rental values of Grade A office spaces slightly decreased QoQ in micro-markets such as the CBD, Worli / Prabhadevi and Goregaon / JVLR and BKC. Due to lower demand, the office market continues to be favorable for the tenants, who are able to negotiate better terms and concessions in many properties.

Colliers View

Overall, the office market is expected to remain stable. IT/ITeS companies will wait for more clarity on the future ofthe state’s IT/ITeS policy. This is not likely to be resolved as the election code of conduct is already in place and the new government may take some time to deliberate on the issue,before taking any decision. Rents will remain under pressure and we anticipate that landlords with large vacant stock will be more accommodating with respect to lease terms in order to retain current tenants and attract new ones. CCI Newswire