, India

Mumbai to see 6m sq ft of new office space this year

There was a total of 2m sq ft of new supply added in Q1 alone.

Net absorption in Mumbai’s Grade A office market totalled 1.44 mn sq ft in the first quarter of 2022, lower by 26% q-o-q but higher by over six-times y-o-y, according to JLL. 

“Occupiers were interested in fully fitted offices to avoid capex, and relocated to projects with lower rents to reduce their RE costs. Expansion-driven enquiries for office space also emerged during the quarter,” the analyst added.

Here’s more from JLL:

The most absorption was recorded in SBD North followed by SBD Central and the Suburbs. Occupiers from BFSI, Consulting and Manufacturing sectors were the most active in 1Q. Space take-up by flex space operators was also seen as the demand for managed workspaces grew. Major pre-commitments remained intact as we also saw occupiers exercising their hard option to take-up more space.

Supply additions of 2.01 mn sq ft in 1Q22

Construction activity was at optimum capacity as COVID-19 cases subsided. Five projects were completed: Lodha Supremus MIDC (0.2 mn sq ft) and Opus Prime (0.18 mn sq ft) in SBD North; One International Center, Tower 4 (1 mn sq ft), Kohinoor Square – Phase 2 (0.22 mn sq ft) and One Lodha Place – lower floors (0.4 mn sq ft) in SBD Central, pushing the city’s Grade A office stock to 145.8 mn sq ft.

A relatively higher quarterly supply addition compared to net absorption in 1Q22 resulted in vacancy rising to 15.8%, an increase of 20 bps q-o-q.

Rents and capital values increase marginally

Overall city rents rose marginally in 1Q22. Some rent softening was visible in sub-markets like CBD, SBD North and Navi Mumbai with high vacancy and projects witnessing limited demand. Capital values rose at a faster clip in the BKC and Western Suburbs submarkets compared to others, as they both are home to high-quality, well-leased assets. Yield compression was also visible in 1Q22.

Occupiers continued to optimise their real estate costs by renegotiating rents, portfolio rationalisation 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), extended rent-free periods, and offered to bear the fit-out capex for occupiers.

Outlook: Supply to outpace demand

About 6 mn sq ft of office space is scheduled to be completed in 2022. Optimum pace of construction activity is expected as long as the number of COVID-19 cases remain under control. 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 medical technology, health analytics, online education, data centres, gaming, pharma and FMCG sectors. Towards the end of 2022, we expect the supply 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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