APPD Market Report Article

Mumbai

November 29, 2022

Dr Samantak Das, Head of Research, India & Sri Lanka

-0.5%

INR 220

Rents
Rising

Net absorption up 37% q-o-q

  • Healthy net absorption of 1.82 million sq ft was recorded in 3Q22, nearly double that from a year ago. Occupiers from BFSI, consulting, manufacturing and healthcare & biotech sectors were the most active. Flex operators remained active as well, as occupiers were keenly looking at managed office formats. Enquiries were received for new office space, and expansion-driven demand was present as well.
  • SBD Bandra Kurla Complex (BKC) saw the highest leasing activity followed by Thane and SBD Central. The majority of space taken up in the city was for new buildings completed in the past few quarters. The quarter saw a few large deals in BKC Fringe, Thane and SBD Central, while Core BKC and West Suburbs recorded churn activity. Absorption in SBD North was mostly from a completion in 1Q22.

Supply addition of 1.7 million sq ft in 3Q22

  • Construction activity was at an optimal level as pandemic restrictions were fully eased. Along with a couple of refurbishments, three new projects were completed. These were Arihant Aura – Tower C (0.6 million sq ft) in Navi Mumbai, Avighna House (0.1 million sq ft) in SBD Central and ABR Emerald (0.3 million sq ft) in SBD North, pushing the city’s Grade A office stock to 146.9 million sq ft.
  • With new supply being almost on par with net absorption, vacancy declined marginally by 30 bps q-o-q to 14.3%.

Rents and capital values increase marginally

  • Overall city rents increased marginally in 3Q22. However, some softening was visible in a few projects in SBD North, SBD Central and Navi Mumbai, where vacancy was high and assets were of lesser quality. A negligible rise in capital values was seen in submarkets like BKC and the suburbs, where vacancy was low and quality assets scarce. Consequently, compression in yields was also seen.
  • Occupiers continued to optimise real estate costs by renegotiating rents, rationalising their portfolio and relocating to buildings with lower rents within the submarket. In most cases, landlords did not reduce rents but adopted strategies like early renewals without rent escalations, extended rent-free periods, and offering to bear the fit-out capex for occupiers.

Outlook: Office demand looks stable despite global headwinds

  • About 5.2 million sq ft of office space is scheduled to complete in 2022. An optimum pace of construction activity is expected with all COVID-19 restrictions removed. Demand for flex space and managed workspaces is likely to be high as occupiers prefer 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 the medical technology, health analytics, online education, data centres, gaming, pharma and FMCG sectors. Towards the end of 2022, supply is expected to outpace demand, leading to an increase in vacancy. Capital values are expected to rise faster than rents due to rising investor interest, leading to a compression of yields in key submarkets.

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

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