Mumbai adds 0.15 million sq ft to its Grade A office stock

Thanks to the completion of one project in Navi Mumbai in Q1.

In a recent report, JLL said a few office project completions in Mumbai have been deferred to the next quarter as they await their occupation certificates. Only one project, Newa Non-IT Bhakti Knowledge Park Phase 1 (0.15 million sq ft), in Navi Mumbai, was completed during the quarter.

With quarterly net absorption higher than the net increase in stock, the vacancy rate saw a drop of 50 bps q-o-q to 13.5%.

Here’s more from JLL:

Net absorption down by 16% q-o-q and 39% y-o-y

Occupier activity was driven by the BFSI, IT/ITeS and consultancy businesses. Flex space operators remained active, in line with growing demand for managed workspaces. Major pre-commitments remained intact. However, net absorption of 0.89 million sq ft in 1Q23 was lower than the preceding five quarters as occupiers grew cautious and global economic headwinds impacted decision-making.

Navi Mumbai accounted for the highest leasing activity, aided by recent completions. SBD BKC and SBD North followed, with a few large deals also seen in SBD Central. Increased leasing activity was seen in the peripheral submarkets. Occupiers preferred fully-fitted offices to avoid capex, and relocated to projects with lower rents. Expansion-driven enquiries for office space also emerged.

Rents and capital values record marginal rise

Overall city rents rose marginally in 1Q23. However, rents remained soft in SBD Central, with relatively higher existing vacancy levels and significant supply pipeline expected in the medium term. A noticeable rise in capital values was seen in BKC, West and East Suburbs, where vacancy remains low amid a scarcity of quality assets.

While key submarkets and quality buildings are witnessing rents holding up, and on an upward trajectory, occupiers continue to look for ways to rationalise occupancy costs by either renegotiating leases, reducing their footprint or relocating to more affordable corridors. Landlords are holding rents steady, but are willing to offer extended rent-free periods or fit-out amortisation for occupiers.

Outlook: Office demand stable despite global headwinds

About 7.1 million sq ft of office space is scheduled to complete in 2023. An optimum pace of construction activity is expected, barring any unexpected, fresh COVID-19 outbreaks. Demand for flex space and managed workspaces is likely to be high as occupiers prefer fully-fitted options to save on costs while gaining flexibility in their portfolio as part of their evolving workspace strategy.

Demand is expected to be driven by medical technology, health analytics, online education, data centres, gaming, pharma and FMCG sectors. Towards end-2023, supply is expected to outpace demand, leading to an increase in vacancy rates. Capital values are expected to rise faster than rents due to rising investor interest, leading to a compression of yields in key submarkets for quality assets.

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