Mumbai: Perched on the ninth floor of Dalamal House, one of the 35-odd buildings at Nariman Point that overlook the Arabian Sea, S.G. Maheshwari recollects how difficult it was to find his 700 sq. ft office at the beginning of the decade.
There was a shortage of commercial space in Mumbai’s posh business hub and demand was good; as a result, property rates were poised to touch an all-time high of Rs40,000-50,000 per sq. ft over the next few years.
But all this has changed as the economic outlook rapidly worsened.
Declining demand: An aerial view of Nariman Point and Cuffe Parade in Mumbai. Property consultants say old buildings at Nariman Point have been losing their appeal and the downturn has only worsened the crisis. Madhu Kapparath / Mint
“It was a status symbol of sorts to own an office in Nariman Point then, but not anymore,” says Maheshwari, former head of the Estate Agents’ Association of India and founder of Maheshwari and Maheshwari, a property brokerage firm.
In 2009, the rentals of Dalamal House have fallen in excess of 30%, and 5,000 sq. ft of space lies vacant.
Even as Nariman Point got tagged as the world’s sixth most expensive office location last week, overtaking Paris and Singapore, in a report called Office Space Across the World 2009 by property adviser Cushman and Wakefield Inc., the country’s premier business district has been reeling.
“Over the past four-five months, vacancy levels have only been increasing as many companies have been moving out of these buildings,” says Maheshwari.
While rentals in premium buildings, such as the various Maker Chamber offices at Nariman Point, have fallen from Rs500 per sq. ft to less than Rs350 per sq. ft, lease rates in other buildings have touched a low of Rs180-200 per sq. ft.
According to Cushman and Wakefield, along with the slowdown in the global economy, rentals at Nariman Point started falling from the middle of 2008. “In the last two-three years, Nariman Point became very expensive. One would assume that in times like these small companies would relocate. However, many of these small firms in the financial services sector have completely closed down and shut operations,” says Kaustuv Roy of tenant strategies and solutions, India, Cushman and Wakefield, without disclosing the names of firms that have met a similar fate.
Globally, too, the office space segment in 2008 witnessed the lowest growth rate since 2004. Even rentals saw an average 3% rise across the world compared with 2007, where previously rental rates rose by 14%.
Rental values fell across India, including Mumbai’s Nariman Point and Worli and south Delhi, with the exception of Bangalore, which witnessed the highest rental growth in the country and in the Asia-Pacific region with the central business district (CBD) recording an 18% appreciation over last year, according to Cushman and Wakefield. However, the report did not specify an average countrywide figure for the fall in rental values.
Among the various buildings that currently have large spaces lying vacant for the past few months are Bakhtawar Tower, which recently won the best building award from the Nariman Point Association, Chandramukhi, Sakhar Bhavan and Nariman Bhavan. The World Trade Center at Cuffe Parade, not far from Nariman Point, also has nearly 15,000 sq. ft of empty space.
Property consultants say old, ill-maintained buildings at Nariman Point with ailing infrastructure have been losing their appeal and the downturn has only worsened the crisis.
Earnest John II, owner of Earnest House at Nariman Point and member of the Nariman Point Association, admits there has been an exodus of brokerage firms to cheaper locations in suburbs such as Andheri or Malad. Nearly 15,000 sq. ft of space has been lying empty in the Bombay Stock Exchange building at Fort in south Mumbai.
Leading office space developers such as K Raheja Corp. say the demand in future is clearly for new, small-sized, customized offices, which is why Nariman Point has lost out to new, swank hubs such as the Bandra Kurla Complex.
Vinod Rohira, director of K Raheja, says, “The demand is for offices of 2,500-8,000 sq. ft...and we have a distinct profile of companies—entrepreneurs, consulting firms and technology-driven companies—who are now opting for built-to-suit offices in areas such as the Bandra Kurla Complex.”
After constructing eight buildings at Nariman Point, Maker Group is doing something similar at the Bandra Kurla Complex, where it has built five buildings and leased them out.
Roopesh Kaul, chief operating officer of Maker Group, says, “The challenge is to create spaces for every segment in a CBD. In the Bandra Kurla Complex, we have replicated the Nariman Point model.”