Compared to Q2 2015, when Mumbai’s rental values had bottomed out, the city will now start to see acceleration in its rental value growth from Q2 2016, says a report titled Global Real Estate Outlook, by JLL.
The research tracks rents for prime Grade-A office spaces in several cities’ CBDs (or their equivalent) across the globe. It then puts these cities on a ‘rental clock’, representing the cyclical nature of office rents. In Mumbai, Bandra Kurla Complex is the de-facto CBD. The original CBD of Nariman Point long lost out to newer micro-markets, due to the evolving needs of occupiers.
In terms of future upward pressure on office rentals, Mumbai is in the company of cities like Sydney, Brussels, Paris, Milan, Amsterdam, Madrid, Chicago and Boston. In Q2 2015, Mumbai’s place on the rental clock was shared by Paris, Brussels, Istanbul and Washington DC. Out of these five, Paris saw a drastic acceleration in rental value growth, while both, Brussels and Mumbai, marched ahead at a slower pace. Washington DC, however, still remains at the same place as last year. Interestingly, Istanbul is now seeing rental values of its prime office spaces falling.
Mumbai office market trends
Mumbai, being the financial capital of India, has traditionally seen a lot of office space take-up by BFSI players and IT/ ITeS (mostly back-office operations of BFSI firms) in different micro-markets. Moreover, showing faith in India’s economic growth, many occupiers have been in an expansion mode.
In a report last year, JLL had forecast that average city-level rents will continue to rise and that the city and its suburbs, will move from being tenant-oriented to being landlord-oriented after four to five quarters. A tenant-driven market indicates oversupply of office space, falling rents, weak demand and big incentives available to tenants, whereas, a landlord-orientated market indicates limited supply of office space, rising rents, strong demand and no incentives for tenants.
JLL had earlier forecast that occupiers will take up spaces in less ideal locations, as good buildings at ideal locations will fill up quickly on the back of continued demand. Grade-B buildings in good areas, will also see renewed interest from occupiers. If the state government improves connectivity and takes up more reforms, additional land parcels in the peripheral areas would open up for residential development and existing office districts could then see further expansion.
(The writer is chairman and country head, JLL India)