Despite a reduction in the lease rates, the office space absorption in Mumbai declined in Jul-Sep 2020, causing the vacancy rate to nearly double as against the pre-COVID-19 times. 99acres analyses the market dynamics and underlines the key factors that contributed to the trend.

While the residential sector of Mumbai adapted to the post-COVID-19 changes in Q3 2020, the commercial segment has not been as swift as other asset classes to bridle the uncertainties. Resultantly, many office deals in the quarter were either cancelled or put on hold in the wake of the widespread financial crunch and the work from home culture becoming the new trend. Numerous companies either downsized and moved to smaller offices or terminated their lease contracts to operate remotely and save on their operational costs. This restricted demand impaired the market dynamics as the office space vacancy rate in the city almost doubled in the Jul-Sep 2020.

The altered dynamics in the office space sector

According to 99acres Insite Report (Jul-Sep 2020), “Despite 10-15 percent reduction in the lease rates, the office space dealings in Mumbai plummeted by nearly 15-20 percent, resulting in about twofold growth in the vacancy rate.” Earlier the office space vacancy rate in the city was around 10-12 percent which increased to 20-25 percent in Jul-Sep 2020.

The trend mainly shaped on the back of reduced popularity of big office spaces as many corporate giants and Multinational firms either deferred their expansion plans or downscaled to smaller offices. The impact was majorly felt in the saturated and high-end markets of Andheri, Lower Parel, Goregaon and Vikhroli where the lease rates were as high as 170-250 per sq ft. Navi Mumbai also saw a similar trend in some of the famous markets of Vashi and Mahape. Many companies in these areas that were earlier leasing 25,000-30,000 sq ft of office space moved to compact spaces of 3,000-8,000 sq ft.   

Mumbai

Q2 2020 (in million sq ft)

Q3 2020 (in million sq ft)

Net growth

Net absorption

0.45

0.28

(-) 38 percent

New completions

1.45

0.30

(-) 79 percent

New supply also remained low owing to the extended lockdown until July 2020 and the disrupted supply chain. However, the easing of the lockdown norms in August reinstated the construction activities, which was a huge respite for developers.

The coworking sector captured a sweet spot

While the international coworking operators suffered a hit owing to their rigid price policies, the local players offering up to 30 percent discount on lease rates and shorter lock-in periods garnered attention. Varun Uproor, Property Agent, Fourth Dimension Realty, shares, “Given the challenging times, many domestic coworking operators provided flexible lease terms to suit the market needs which helped many companies to sign contracts. A reduction in the lease rates was one of the crucial factors that boded well for cash-strapped businesses. The average lease rate for coworking spaces dipped from Rs 8,000 per seat in the pre-COVID-19 times to Rs 5,000 per seat in Jul-Sep 2020.”

Besides, the demand for enterprise segmentation facility in shared spaces also gained prominence. The access to the entire office infrastructure restricted lateral movement, and enhanced security services led many firms to shift from the conventional built-to-suit spaces to well-managed enterprise segments where the whole floor is dedicated to one single client. Overall, the demand in coworking sector improved, and developers are optimistic that the increased preference of shared workspaces would further help in bridging the yearly gap of 20-25 percent.

The commercial reboot

With markets reopening, commercial operators are hopeful of better days ahead in the upcoming quarters as businesses would gradually take a route to recovery. Besides as Mumbai has always been a preferred commercial market, realtors are anticipating new deal closures around Jan-Mar 2021. However, pocket-friendly areas that assure robust connectivity and well-established residential locales nearby, such as Thane-Belapur belt, may remain favoured. For instance, Buro Happold and Hapag Lloyd leased a 20,000 sq ft and 60,000 sq ft of office space, respectively, in Qparc in the Thane-Belapur stretch.

Besides a few companies, such as Global Cloud Exchange, Nykaa and Mahindra Finance, also intend to lease around 18,000-30,000 sq ft of Grade A office spaces in Thane, Andheri and Navi Mumbai markets.

Office deals recorded in Mumbai Metropolitan Region (MMR) around the festive period

Companies

Offices spaces

Leased area (in sq ft)

Location

LIVSPACE

Equinox

28,000

Bandra-Kurla Complex

Arcelor Mittal

Vibgyor Towers

30,000

Bandra-Kurla Complex

Brookfield

Godrej

40,000

Vikhroli

AWFIS

Adani

17,000

Bandra East

IDFC Bank

Cresenzo

60,000

Bandra-Kurla Complex

Source: Varun Uproor, Property Agent, Fourth Dimension Realty  

While the commercial market’s revival hinges on the intensity and duration of the pandemic, the corporate giants are leveraging the existing market scenario to earn lucrative rental deals through rent-free periods and limited rental escalations to curtail on their future outgo.