APPD Market Report Article

Mumbai

December 1, 2021

1.5%

INR 218.8

Rents
Rising

Net absorption increases by 2.5 times y-o-y in 3Q21

  • Net absorption of 0.97 million sq ft was recorded in 3Q21, driven largely by take-up from non-IT occupiers in the BFSI, consulting and manufacturing/industrial sectors. Space take-up by co-working operators was also observed, in line with growing demand for managed workspaces. Net absorption, while the highest in five quarters, was still lower by 54% compared to the pre-COVID-19 levels of 1Q20.
  • SBD North saw the highest leasing activity followed by SBD BKC and Navi Mumbai. SBD North saw the highest number of mid-sized deals — in line with the trend of occupiers moving closer to employees’ homes and also reducing costs by moving to more affordable commercial markets. Some large deals were seen in BKC Fringe as well, while absorption in Navi Mumbai was mainly from new completions.

Supply of 1.79 million sq ft completes in 3Q21

  • Construction activity has gradually picked up with the easing of COVID-19-related restrictions. Two projects were completed during the quarter — Gigaplex B9 (1 .2 million sq ft) in Navi Mumbai and; Quantum (0.59 million sq ft) in Thane. This supply influx pushed the city’s Grade A office stock up to 134.6 million sq ft.
  • A relatively higher supply addition compared to the quarterly net absorption resulted in vacancy rising to 16.4% in 3Q21.

Rents and capital values remain stable

  • Overall city rent and capital values were stable in 3Q21. However, rents remained under pressure in SBD North, Thane and Navi Mumbai, mostly in projects with high vacancy levels and those of lesser quality. A negligible rise in capital values was seen in the submarkets of BKC and the Suburbs, driven by low vacancy levels and scarcity of quality assets.
  • Occupiers continued to optimise their real estate costs by renegotiating rents, reducing existing office space and relocating to projects with lower rents. In most cases, landlords did not reduce rents but adopted strategies like the extend-and-blend model (early renewals without rent escalations), offering extended rent-free periods and offering to bear the fit-out capex for occupiers.

Outlook: Supply to outpace demand

  • As the COVID-19-related restrictions ease, about 7 million sq ft of office space is expected to be added to stock in 2021, while the absorption is expected to be around 50% of the new supply. However, demand for flex space is likely to be high as occupiers lean towards fully fitted options to save costs and look to implement the hub-and-spoke model as de-densification and BCP gain importance.
  • Demand is expected to be driven by medical technology, health analytics, online education, data centres, gaming, pharma and FMCG sectors. Until the first half of 2022, we expect the supply to outpace demand, causing vacancy levels to rise. Capital values are expected to rise faster than rents due to rising investor interest, leading to yield compression in key submarkets.

Note: Mumbai Offices refers to Mumbai's overall Grade A market.

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