Office Space Shrinks In Mumbai As Residential Takes Over

Mumbai, the city known to be the financial hub of the country, is now feeling the heat as it is unable to create enough office space for some of the leading companies. The reason: rising demand for residential real estate. According to a report by PropTiger DataLabs, new launches in Mumbai witnessed a rise of around 14 per cent on a month-on-month basis. Interestingly, this uptick has given a new vision to the developers to foray into more residential real estate projects over office real estate. This rising interest towards residential real estate has led to shrinking of office space in Mumbai, thus, increasing the rental rates of office space.

Changing tracks

According to a recently released market report, the supply supply pipeline in Mumbai witnessed a drop of 36 per cent and thus, the number of new office space has decreased from 9.2 million sq ft in 2014 to 5.9 million sq ft in 2016. In past one year, there has been a drastic fall of around 73 per cent. The reason behind this drop is the the 2008-2009 global financial crisis that led to a fall in demand for office space in the coming years. This in turn led to the developers opting out of many office projects during 2012 to 2013 and making a move to the more profitable stream of residential projects.

Moreover, while residential projects start fetching the developers constant cash flow in the under-construction stage, the office projects give them returns only when a company leases that office space as a tenant.

Although the vacancy rates in Mumbai have witnessed a decline from 21.6 per cent to 19.6 per cent, the number is still higher than the rates in Bengaluru and Pune where the vacancy rates are as low as 6 per cent and 8.2 per cent, respectively.

Preferred destinations

Areas such as BKC (Bandra Kurla Complex) and Lower Parel have a vacancy rate of five per cent whereas the western suburbs are still struggling to attract tenants. The reason is the ever-rising rental rates on the account of low availability of office space. And in times like this, the companies are not yet ready to pay hefty rents.

The price-sensitive companies planning to take up office space in Mumbai still see Andheri in the Western suburbs and Navi Mumbai as their preferred locations. Whereas, expensive areas such as BKC and Lower Parel are only an option picked up by multinational conglomerates.

A shift

The scarcity of land, high rentals and availability of affordable options are the prime reasons that is encouraging many companies to have offices in areas such as Navi Mumbai, Pune and Bengaluru.

Recently, Swiss bank UBS leased office space of around four lakh sq ft in K Raheja's SEZ (Special Economic Zone) in Navi Mumbai. On the other hand, big names such as Amazon is considering to purchase commercial space in Inorbit Mall at Pune.