Mumbai has got another wake-up call to relook at its exorbitant real estate prices. With average prime district office rentals falling by 4% in 1Q15, Mumbai has performed better than only two cities in a global Jones Lang LaSalle survey. Only Sao Paulo and Moscow, with 5% and 24% depreciation respectively, fared worse in the comparison between central business districts (CBDs) of leading cities across the world.
Brussels and Paris were the two other cities, which saw 4% and 3% depreciation respectively. Frankfurt was the only city that saw no change. London was the top performer at 12% increase in rents followed by Tokyo at 7%, Shanghai, Hong Kong and New York – all three at 4%, Dubai at 3% and Sydney at 1%. The calculations are in local currencies and the report tracks only the central business districts (CBDs) across these cities.
Mumbai figures among those global financial centres that saw a fall in prices. Moscow and Sao Paulo, which are also financial centres of these emerging economies, are in the red. Among the mature economies, only Brussels and Paris figure in the red while Frankfurt sits on the borderline. Most other cities like Sydney, New York, Tokyo and London remain in the black.
Reasons behind Mumbai’s poor show
Long-term trends differ from short-term trends; the latter being mere influences. The fall in Mumbai CBD’s rentals could be due to a short-term influence. The contrast in Mumbai’s office market is that the city has 17% vacancy, which is not healthy, but at the same time, there is gentle appreciation seen in rentals owing to demand revival. That said, there is a shortage in availability of the right product offering (superior quality supply) at the right location.
One of the major reasons behind the fall in rentals is the shift in demand from Mumbai’s CBD to the secondary business districts (SBDs) in its suburbs. The city’s CBD is losing its sheen over the past five to six years and rentals here fell by 3.4% in the last one year.
As demand for residential properties moves towards suburbs farther away from the city centre, so does the demand for office spaces. As part of that trend, Bandra Kurla Complex (BKC) is now the de-facto CBD of Mumbai.
Some other reasons for the shift include:
There are always certain trophy projects in the business districts that beat the trend and continue to show positive growth in rentals. Three such marquee projects in the BKC market are
Authored by: Ashutosh Limaye, National Director – Research, JLL India
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