The average increase is 1.3% y-o-y; Thane witnesses higher increase in rentals than city’s micro-markets
Ashutosh Limaye, National Director – Research, JLL India
The
gross average rents in Mumbai (including Thane and Navi Mumbai) rose by
1.3% y-o-y, as of 3Q16. In Mumbai, the western suburbs’ micro-market
registered the highest growth in rentals at 2.1% followed by the eastern
suburbs at 1.7%, SBD BKC at 1.5%, SBD Central at 1.4% and SBD North at
1.2%. CBD rents continued their downward journey and declined by 1.6%.
Outside Mumbai city, rentals rose in Thane by 2.5% and Navi Mumbai by
0.7%,
Showing
faith in India’s economic growth, corporate occupiers have been in
expansionary mode. However, there is a lack of relevant supply at ideal
locations in Mumbai. Due to this, some companies wanting to expand are
taking up relevant supply at ideal locations in both the eastern and
western suburbs. Not too long ago, Bandra Kurla Complex (now the de-facto CBD of the city) and the other SBDs had first seen such a movement of occupiers from the CBD.
The
suburbs have been cheaper, rent-wise, than the established office
districts. Many back offices have preferred these locations over the
years, due to their cost arbitrage. Interestingly, a foreign pharma
company had recently carried out a large transaction in a grade-A
building in the western suburbs. And it was not just a move to set up
their back office here but their India headquarters.
Suburbs
could see more such developments in the future. With big infrastructure
projects like the coastal road and several phases of metro rail in the
pipeline; suburbs show promise of better connectivity in the years to
come. They have another advantage of being closer to residential areas.
We could see more corporate occupiers moving in if relevant supply comes
up here.
Rents
may continue to increase in these micro-markets and, especially so,
after connectivity has improved. While the western suburbs enjoy close
proximity to the airport, the eastern suburbs enjoy proximity to Thane
and Navi Mumbai. CBD, on the other hand, will continue to see further
correction in rents. The city’s CBD has been losing its sheen over the
past five to six years. As this micro-market has a limited supply of
quality office spaces, corporate occupiers have been moving to SBDs.
Gross Rents (in INR per sq ftpm)
| ||
3Q16
|
Y-o-Y Change
| |
Overall
|
121
|
1.30%
|
CBD
|
209
|
-1.60%
|
SBD Central
|
177
|
1.40%
|
SBD BKC
|
210
|
1.50%
|
SBD North
|
112
|
1.20%
|
Western suburbs
|
94
|
2.10%
|
Eastern suburbs
|
96
|
1.70%
|
Thane
|
61
|
2.50%
|
Source: JLL REIS
Despite
the highest increase in rentals recorded in Thane, the micro-market
continues to offer very affordable rentals. Along with Navi Mumbai,
which is the most affordable micro-market in the Mumbai metropolitan
region with grade-A office space availability, Thane continues to be the
preferred destination for IT/ ITeS players and back office operations
of banking, financial services and insurance (BFSI) players as cheaper
rentals are an important business priority for them.
Business
process outsourcing and knowledge process outsourcing centres also
dominate these two micro-markets, which may see further appreciation in
their respective rentals in the future, until they become non-feasible
for the current occupier profile. If the state government improves
connectivity and takes up more reforms, however, additional land parcels
in the peripheral areas would open up for residential development and
existing office districts could then see further expansion.