DTZ MUMBAI OMB Q2 09.pdf

mumbai update office market brief Q2 2009 For enquiries on this report, please contact: Priyankar Bhikshu, Associate Director Consulting & Research Tel: +91 99997 05551 E-mail: For leasing or occupier services enquiries, please contact: Anurag Bhatnagar, Associate Director Corporate Services Tel: +91 99997 05556 E-mail: This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ Research. (c) DTZ Research Grade A office market statistics Note: Base Rents reflect the average warm shell rents. Occupancy cost is rent plus all outgoings where outgoings include fixed maintenance charges applicable as per local market norms. 1CBD includes Nariman Point and Cuffe Parade 2Off CBD includes Worli and Parel 3Suburban includes Andheri Kurla road and Andheri (W) 4New CBD micro market includes Bandra Kurla Complex, Kalina and Santacruz (East) 5PBD micro market includes Goregaon -Malad, LBS Marg, Powai, Navi Mumbai and Thane. Exchange rate: US$1= INR 47.8 * Reflect occupancy cost changes compared to Q408 (not accounting for exchange rate fluctuations) Market close to bottoming out Q209 saw the addition of 3.26 million sq ft (msft) of new supply, a slight reduction from what was added in the last quarter (3.28 msft). 59% of this new supply was in the PBD region, 27% in the Suburban and the balance came up in the new CBD of BKC. These new additions have seen the total grade A stock in the city reach close to 45 msft, a 75% increase since beginning of 2008. 1.18 msft of absorption was reported during Q209, a significant increase from the level reported during the last quarter (0.62 msft). This was a result of the eagerness shown by occupiers to take up space so as to not miss the bargains available in the market and also the willingness of developers to negotiate, especially in case of larger transactions (5 transactions of 100,000 sq ft or more were reported this quarter). On a q-o-q basis, Q209 has seen a stronger correction in occupancy costs compared to the last quarter (10% vs. 4%), with an overall 14% fall compared to the start of the year, led by the fall in Off CBD (22%) and Suburban (19%) micro markets. The New CBD which saw a fall of 16% in occupancy costs from the beginning of the year, has since reported some upward quotes by developers in select buildings towards the end of this quarter(Q209). Grade A office rentals (2005 - Q2 2009) Source: DTZ Research This surge in New CBD rentals might just be a short term phenomenon or an indication that the rentals in this micro market might have bottomed out, signifying the dawn of recovery for Mumbai commercial market as a whole. The rental forecast for the other micro markets is not as optimistic, with most expected to sustain present levels in the near future. Mumbais grandest piece of infrastructure, the Bandra- Worli Sealink was finally completed. This has improved the connectivity and significantly reduced the travel time between the two key nodes (Bandra and Worli) within the city. Given the high toll charges, the completion of the sealink is unlikely to have an impact on the rentals in either of the two micro markets. Overall, the market indicators more than ever seem to be strongly demonstrating that a recovery in the city can be anticipated towards the year end. In The Phoenix Hope, DTZs report on the expected market revival we had estimated the threshold vacancy levels in the city to be around 30%, which would be breached towards the end of the year, before the turnaround happens. Though, developers feel that the buoyancy shown by the New CBD micro market would usher in the revival, the fundamentals of this optimism would be tested during the next quarter. Supply and take up (Q2 2008 Q2 2009) Source: DTZ Research Recent transactions KPMG leased 100,000 sq ft at Excellus, Lower Parel Wyeth Pharma leased 36,800 sq ft at Platina, BKC SAP leased 14,975 sq ft at Platina, BKC Total stock (sq m) Vacancy (%) Base rent (INR/sq ft/mo) Occupancy cost (US$/sq ft/yr) % change (from Jan 09)* 6 month forecast CBD1 163,509 5.75 400 106.69 -5.56 Off CBD2 394,138 24.41 230 61.51 -22.22 Suburban3 830,278 28.26 110 31.38 -19.35 New CBD4 537,952 17.45 250 67.78 -15.63 PBD5 2,243,618 30.89 70 20.08 -11.11 Overall 4,169,494 27.03 129.25 35.8 -14.17 India