Mumbai slips in rankings of most pricey office markets

No Indian city figures among the top 10 most expensive office space markets for the first time in six years, according to an annual report by property advisory Cushman and Wakefield. The listing is based on rental rankings.

Mumbai’s Nariman Point is the 15th most expensive central business district (CBD) office location on the list, dropping seven spots from its eight position in the 2011 rankings. Hong Kong retained its top spot followed by London and Tokyo, and Beijing and Sydney entered the top 10.

Asia-Pacific recorded the highest regional prime office rental increases in 2011, according to the report, with rentals across the region rising by an average of 8%. Beijing recorded the highest jump at about 75%.

As fears of a slowdown grip India’s realty sector, fresh office space supply declined by 40% to 30 million sq. ft in 2011 on the back of delays in project completion, piling up of vacant stock and weak global economic cues, according to a January report by property consultancy CB Richard Ellis. Lease rental rates declined by 10-20% in some markets.

Office rentals in Nariman Point declined by about 8% in 2011 owing to higher prices and other factors—a trend visible in recent years, said the Cushman and Wakefield report.

The decline of rentals at Nariman Point follows the strong growth of other micro markets in Mumbai in relation to the CBD and a correction in rentals in prime locations that saw an unprecedented rise in 2007-08, said Ravi Ahuja, executive director, Cushman and Wakefield, India.

Relatively newer office space hubs in Mumbai’s suburbs such as the Bandra-Kurla Complex (BKC) have seen rentals rising sharply. Rentals at BKC rose to about Rs.275 a sq. ft in December from about Rs.260 a sq. ft a year earlier, whereas in Nariman Point, office rents fell to Rs.275 a sq. ft from Rs.300 a sq. ft in the same period, placing both areas in the same bracket.

Among other Indian cities, Kolkata saw the sharpest rise in rentals at 24-28%, followed by suburban Hyderabad’s 18.8% increase. The New Delhi-National Capital Region (NCR) saw only a marginal increase in office rentals. Demand for office space in the region was largely skewed toward information technology special economic zones, where rentals rose by about 4%.

Office rentals across the country are correcting to attract new tenants and retain existing ones, according to property analysts.

Oberoi Realty Ltd, for instance, faces pressure during renewal negotiations to reduce the rent at its office property in suburban Mumbai, its chairman Vikas Oberoi told analysts during a conference call after announcing the company’s December quarter results.