February 5, 2024: New supply of office space in Mumbai declined 23% year-on-year (YoY) in 2023 to a historic low of 2.7 million square foot (msf) as real estate developers avoided building office complexes in the past few years, anticipating a fall in demand because of the Covid-19 pandemic, according to a Vestian report.
The report stated that a fresh supply of office spaces stood at 3.5 msf in 2022. However, Vestian CEO Srinivas Rao expects new supply to bounce back as demand will rise with the gradual return of employees back to the office. Besides the disruption caused by the pandemic, the Vestian report noted that a surge in housing demand over the last few years also played a role in lower new supply of office spaces.
Apart from building housing, malls and offices, realty firms have diversified their businesses and are developing data centres and warehousing projects in the Mumbai region to meet the demand for such assets, the report mentioned.
Further, the report highlighted that the fall in the new supply of office spaces and rise in demand for workspaces led to a modest rise of 3.8% in rentals during the last year.
Shrinivas Rao, FRICS, CEO, Vestian, said, “Strong fundamentals, emergence of other asset classes, and rapid infrastructure development is likely to keep the Mumbai real estate market buoyant. While the supply of office assets has slowed down in the past 3-4 years, it may pick up pace on the back of robust demand amid growing prominence of work-from-office mandates.”
Mumbai, one of the most active real estate markets in India, reported a historic low supply of 2.7 msf in 2023, accounting for only 6% of pan-India supply. The supply has been on a downward trend since 2018, further decelerating due to COVID-19 in 2020. However, it increased momentarily in 2021 to 6.5 msf, but again continued its fall.
As per Vestian’s latest office market report, ‘The Connect’, Mumbai saw a supply of 6.2 msf in the past two years (2022 and 2023), which was half compared to the office buildings completed pre-pandemic (2018 and 2019). The fall could be attributed to the sudden decline in the demand for office spaces during the pandemic. Mumbai was prominently impacted by COVID-19 and remained a hotspot for a prolonged period. This shook the confidence of developers, who anticipated a slow recovery instead of a V-shaped recovery for office markets in the city.
During this uncertainty in the city’s office market, developers re-strategised their portfolios. Other asset classes such as warehousing, date centre and residential picked up pace on the back of robust demand post-pandemic. This significantly reduced the attractiveness of office assets in the city, leading to a gradual slowdown in supply.
The rise of other metro cities as an affordable option to Mumbai has also played a pivotal role in putting a dent in the confidence of developers in the past 4-5 years.
Rental appreciation in Mumbai
According to the Vestian report, rentals appreciated further on the back of robust absorption of 8.4 msf in 2023, the highest post-pandemic. Restricted supply, relatively robust absorption and reduction in vacancy led to the northward movement of average rentals in the city, increasing by 3.8% annually to Rs 124.5 per sqft per month. The rentals are anticipated to appreciate further due to the limited planned supply in 2024. However, a healthy pipeline of upcoming supply in 2025-26 is expected to ease the rental bull run a bit.
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Harini is a content management professional with over 12 years of experience. She has contributed articles for various domains, including real estate, finance, health and travel insurance and e-governance. She has in-depth experience in writing well-researched articles on property trends, infrastructure, taxation, real estate projects and related topics. A Bachelor of Science with Honours in Physics, Harini prefers reading motivational books and keeping abreast of the latest developments in the real estate sector.
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