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Air India's recent move to lease out 12 of the 23 floors at its Nariman Point headquarters here has seen muted response, though the airline extended the deadline for bids.
Air India isn't alone. As global and domestic economies continue to flounder, vacancies at many existing and new commercial properties across India's commercial capital have risen to 30-50 per cent levels from 14-15 per cent in 2009.
According to global property consultant Knight Frank, transaction activity in commercial office properties in Mumbai fell nearly 23 per cent in the second quarter of the current financial year, compared to the same quarter last year. It fell 19 per cent, compared to the first quarter of FY 2013.
At the First International Finance Centre (FIFC) - jointly developed by US-based Vornado, Starwood Capital, The Chatterjee Group (TCG) and others at the Bandra Kurla Complex (BKC) - half the space is yet to be leased or sold. The developers sold around 300,000 sqft to Citigroup earlier this year.
In the nearby TCG Financial Centre, promoted by TCG, the developer is yet to lease or sell eight floors out of a total of 11. The three floors are occupied by African banking major FirstRand group. A mail to TCG Real Estate did not elicit any response.
According to property consultants, in the Wadhwa group-developed project The Capital, the vacancy levels are over 30 per cent. When contacted, a senior Wadhwa group executive said: "The project was completed three months ago and we expect things to pick up in the next one year. We have 25 per cent of the project with us and the rest is leased or sold." When asked about vacancy, he said: "Not in our books."
Consultants say vacancies at BKC are a result of high rates. "At Rs 250 to Rs 300 a sq ft, there are very few takers," says the head of a US-based investment firm. According to BNP Paribas Real Estate, average office rents in BKC have fallen 12 per cent in the third quarter of 2012, compared to the same period of 2011.
At the Nariman Point-Fort belt, home to companies such as the Tatas and Ambanis, vacancies are lower but so is the demand, say consultants. Many office buildings such as Dalamal Towers and Mittal Towers have a vacancy of 20 to 30 per cent.
"Though Nariman Point has less vacancy compared to Bandra Kurla Complex or Lower Parel, there is negligible new demand and only old tenants are renewing contracts," says Sanjay Dutt, executive managing director at Cushman & Wakefiled, a global property consultant.
Raja Seetharaman, managing director of Aperon Realty, says "Nobody wants to be at Nariman Point. Everybody is shifting from there, given the lower rents in Lower Parel and BKC." A number of global banking majors such as Standard Chartered, Morgan Stanley, Deutsche Bank and Citigroup and consumer goods major HUL have shifted to BKC and Andheri, respectively, in the last few years.
Reflecting the mood, average rents in Nariman Point have fallen from Rs 310 in Q3 of 2011 to Rs 280 a sq. ft in Q3 of 2012, a 11 per cent decline, according to BNP Paribas Real Estate.
Although Lower Parel-Worli has seen a number of new projects such as Indiabulls One Centre and the Wadia group's Wadia International Center, consultants say deals are still happening in office projects, as they are attractively priced between Rs 125 and Rs 175 a sq. ft versus Rs 250-300 a sq ft in BKC and similar amounts in the Grade A buildings in Nariman Point.
However, developers are yet to see significant space in projects such as Marathon Futurex in Lower Parel or Ruby Mills in Dadar, say consultants. When contacted, a Marathon Group spokesperson said: "Marathon Futurex has already concluded successful deals with known companies in the corporate sector. However, we are developing our project in a phased manner and unlike others, we are not nursing any ready inventory."
Some players are playing safe. Century Textiles, coming out with its nearly four million sq ft office project in the Worli area is yet to start leasing, given the oversupply, said a company executive.
Others such as Lodha, Hubtown, and Kanakia are selling office spaces of 1,000-2,000 sq. ft to professionals to ensure steady cashflow.
Ashok Kumar, managing director of Cresa Partners, a global commercial realty services firm, rents have softened four - five per cent in the current year and developers are offering "rent free" periods of six to seven months to tenants and flexible lock-in periods.
"If you pay six months rents in advance, developers are ready to lower rents and are ready to offer lock-ins of two to three years," Kumar adds. Normally, tenants go for a leave and licence agreement of five years.