We are full. We have no space left,” says Niranjan Hiranandani, Managing Director of Hiranandani group, about the Hiranandani Business Park, a plush office complex at Powai in Mumbai. Early last year, the complex witnessed vacancies of 30 per cent or so, he says.
It is the same case with One Indiabulls Centre (One IBC) in Lower Parel, which has vacancies in single digits now, compared to nearly 50 per cent last year. Even Indiabulls Real Estate's office project, Indiabulls Financial Centre, in the same locality has only 20 per cent vacancy, though the actual delivery of the property is still six to seven months away, says a top executive from the group.
Office property transactions hit record levels in Mumbai as large number of companies from IT/ITeS, consulting, automobile sectors booked spaces along with BFSI (banking, financial services and insurance), which dominates among office tenants in Mumbai. Strong economic growth is said to be the reason for the buoyancy in office property markets.
Nearly 6.83 million square feet of space was transacted in the current financial year, so far, as against 6.68 million sq ft in the 2009-10 financial year, says data from property consultant Knight Frank. This number includes both lease and sale transactions.
| SPACE VALUE | ||
| FY 2010 (mn sq ft) | FY 2011 (mn sq ft; till Dec 2010) | |
| Total area transacted | 6.68 | 6.83 |
| Lease transactions | 5.15 | 5.23 |
| Sale transactions | 1.52 | 1.59 |
| CONTRIBUTION OF SECTORS | ||
| BFSI | 40.6% | 27.0% |
| IT/ITES | 20.3% | 36.6% |
| Source: Knight Frank | ||
The overall vacancies in Mumbai's office properties have dropped to 11.5 per cent now compared to 29-30 per cent during early 2009 as companies deferred booking spaces due to lower demand for their products and in anticipation of lower rents.
"Economy is growing and results of corporates are good. They (companies) have to scale up operations to tap that growth. For that, they need people and spaces,'' says national head, agency leasing, Raja Seetharaman, Jones Lang LaSalle (JLL) India.
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The Indian economy is set to grow 8.6 per cent in the current financial year as compared to eight per cent last year, data released by Central Statistics Office says.
While International firms are leasing properties, the last quarter saw companies such as YES Bank, JSW Group and India Infoline buying properties in Mumbai. "Both domestic and self employed are gearing up, hence we believe that this year the sector will see accelerated demand for outright purchase of property against leasing," says Babulal Varma, Managing Director, Omkar Realtors & Developers, which is launching its office project soon.
What is surprising is that IT/ITeS was the largest contributor to the office property offtake in Mumbai in 2010-11. According to Knight Frank Research, of the total offtake, 36.6 per cent, was contributed by IT/ITeS followed by BFSI at 27 per cent. In 2009-10, IT/ITeS contributed 20 per cent while BFSI was 40 per cent. Companies such as Wipro, Syntel, Accenture and L&T Infotech have booked the space in Airoli in the current financial year.
Rents may not rise fast
While transactions have picked up, office rents are expected to rise marginally due to oversupply in micromarkets, say property consultants.
According to JLL India's estimates, while Mumbai's micro markets have added 2.39 million sq ft of office space in the fourth quarter of 2010, the actual absorption was 1.3 million sq ft. Mumbai has a total operational space of 39.1 million sq ft. Close to 26 million square feet of new office space are expected to hit the market over the next 24 months on account of number of new project completions in central Mumbai and Navi Mumbai, and vacancy levels are going to rise to 25 per cent, says Ramesh Nair, managing director, West India, JLL India.
“It will take 12 to 15 months to absorb the current supply. Till that time, I do not think rents will increase,” says Kumar of Cresa Partners.
Average rents in Mumbai stood at Rs 95 per sq ft per month in 2010-11 as against Rs 105 per sq ft in last year.