Top Stories
Mumbai's Prime Office rates continue to rise despite Depressed Market: JLL
With overall vacancy increasing and business and investor sentiment low, why are office rents in many micro markets in Mumbai still increasing? In the recent past, many corporate decision makers have been wondering aloud why the rents and capital values in markets such as Lower Parel and BKC have risen in the last 4-5 months.
The answer to this query is - lack of quality supply in superior locations. It is true that office vacancy levels in Mumbai remain high at 19%, and that there are many vacant buildings. But it is also true that there is a basic scarcity of available good-quality, right-sized Grade A office stock in the city's prime locations.
Corporate tenants who need to relocate, contract, expand or consolidate are still actively scouting for such properties in the CBD and SBD areas. They are, in fact, competing with other prospective tenants and buyers for the restricted range of available properties.
As a result, they are being exposed to the high market rates. Lower-priced properties and the incidence of distressed capital values for prime commercial space in Mumbai's preferred corporate office locations are few and far between.
The condition is unlikely to change in the short-to-medium term. The post-Lehman Era liquidity fallout on developers has seriously crimped the office development supply pipelines. Also, the new Development Control Regulations (DCR) for Mumbai announced by the State Government earlier this year does anything but encourage commercial construction. The DCR has allotted more fungible FSI to residential construction. The premium payable on fungible FSI for commercial developments is also higher than it is for residential projects.
Moreover, banks, private equity funds and NBFCs are now more reluctant than ever before to fund speculative commercial construction. All this has further impacted the incidence and potential for new office space launches. Most of the projects currently nearing completion were conceptualized in 2007 or 2008.
Residential property prices in Mumbai are significantly higher than commercial space rates. It is a fact that residential projects are self-funded by buyers, while commercial developers have to wait till building completion to start getting cash inflows thereby reducing cost of funding for developers for residential.There has been a significant increase in construction costs over the last two years, and commercial capital values in low-priced markets such as Thane and Navi Mumbai are not likely to rationalize despite a 25% + vacancy.
All the above mentioned factors will have a definite impact on future commercial supply in the city. This is definitely an opportunity for commercial developers to take a contrarian point of view and start planning new commercial projects.
Meanwhile, many occupiers from the pharmaceuticals, media, logistics, manufacturing and FMCG industries are continuously looking for space in markets such as Lower Parel, Andheri and the Western Suburbs. One of the biggest challenges they face is the fact that most of the office developments completed in the last few years in these locations are IT Parks. This means that there are zoning restrictions with regards to types of occupiers which are allowed in them.
The overall commercial space vacancy in the Central SBD micro market (with sub-markets like Lower Parel) is at 24%. The vacancy for Grade A, non-IT office space vacancy is only 5%. In the Andheri and Western suburbs micro market, the overall vacancy is around 23% but the vacancy for prime Grade A office space is only around 10%.
The completion rate for office projects over the next two years will be much lower than in the preceding three years. Many speculative completions will not see the light of day till 2015-2016. Any reasonable improvement in occupier demand will do nothing but add to the pressure on supply, thereby stimulating further increase of rents and capital values in Grade A buildings within the prime locations. A wait-and-watch approach will therefore prove to be a costly stance for occupiers who are intent of opening offices in these areas. Most of the micro-markets have shown sufficient indications of having bottomed out.
Ramesh Nair, Managing Director - West, Jones Lang LaSalle India
In Focus Stories
Absorption numbers fall ~24% since Q1 FY12: Knight Frank
Knight Frank India released its Research Report on the Pune Office Market for August 2012
Market Overview:
The lull in market traction is expected continue in the short term as the IT/ITeS sector which dominates the Pune office market continues to tread cautiously in the face of an uninspiring global economic environment
Vacancy levels are expected to trend higher as nearly 4 mn.sq.ft. of office space is scheduled to come online in the next two quarters. Vacancy levels will be under pressure and would vary between 23%-25%
Absorption numbers in Q1 FY 2013 have fallen almost 24% from Q1 FY 2012 and 15 % from the preceding quarter
Rental levels have held steady thus far but they will be under pressure when fresh supply hits the market and if take up does not improve in coming quarters
Sectoral Analysis:
The BFSI sector made a come-back in the current quarter as its market share jumped to 15% from just 3% in the previous year, this was majorly due to a 0.1 mn. sq. ft lease inked by Citibank in Eon at Kharadi
The It/Ites still dominate the Pune Office market as the top 5 transactions during Q1 FY 2013 were accounted for by them. Over half of the spaces transacted by this sector was concentrated in Hinjewadi and Hadapsar
Demand from manufacturing sector has been steady owing to the expansion of auto giants such as Volkswagen, Mercedes resulting in their vendor companies setting up factories in Pune
Outlook
The lull in the commercial office space market is expected to persist over the near term as the corporate and industrial sector exercise caution with their expansion plans
Domestic News
Real Estate (Regulation & Development) Bill with Law Ministry
The Minister for Housing and Urban Poverty Alleviation (HUPA) Kumari Selja has said that the Real Estate (Regulation and Development) Bill, 2012 is with Ministry of Law and Justice for vetting and after getting the same, the Ministry of Housing and Urban Poverty Alleviation will move the Bill to Cabinet.
In a written reply in the Rajya Sabha today she said, the said Bill does not make it compulsory for developers to provide some portion of project townships for the lower income groups. However the Ministry of Housing & Urban Poverty Alleviation has suggested amendments to the State Acts for earmarking of minimum of 20% of developed land or 20% of Floor Space Index (FSI) in all land development/housing projects (both by Public and Private Agencies) to be reserved for Economically Weaker Section (EWS) and Lower Income Group (LIG) category.
Kumara Selja saud, the Real Estate (Regulation and Development) Bill mandates the developers to disclose the project details like approved layout plan, timeline, cost, sale agreement to the regulator before selling the property.
Ajmera Realty launches Villows in Bangalore
Ajmera Realty & Infra India Ltd. launched a project called Villows in the heart of Bangalore City recently. The lush Mexican style villas, offers luxury like never before.
Villows is one of its kind thematic architectural projects in the city. The project encompasses exclusive premium fifty-seven villas each of 4BHK’s. The villas have been crafted to perfection having been bestowed with extravagant architecture and exotic ambience.
Located in Electronics City Bangalore, the project is reminiscent of erstwhile Bangalore, when it was more popularly known as the ‘Garden City’. The project is surrounded by abundant lush greenery and flowers. Each villa along verdant avenues of the forest showcases large living and dining spaces with a double height ceiling & skylight, tree courtyard. One of the infrequent features is that the project is designed considering Feng Shui features that allow positive energy to flow through every corner of your home. This concept behind Ajmera’s Villows makes it class apart from many other supreme villas in Bangalore.
Mantri Developers ties up with TELiBrahma to offer ‘Augmented Reality Application’
Casa Grande Q1 net profit up by 234% to Rs. 43.3mn
International News
UK House Prices fall for Second Month: reports
UK house prices fell for a second month in August and will probably remain little changed into 2013, Halifax reportedly said. Reports said that Values fell 0.4 percent from the previous month to an average 160,256 pounds ($255,000). From a year earlier, values were down 1.1%, says report.