BSE sees business in renting out office space

Mumbai: The iconic Phiroze Jeejeebhoy Tower in south Mumbai, which houses Asia’s oldest bourse BSE, is the new address for many Indian corporations, opening up a new revenue stream for the exchange.

add_main_imageAs rentals have shot up and companies began shifting to cheaper locations in north and suburban Mumbai from south, to control fixed costs, BSE is making the most of it by leasing out commercial spaces in its 29-storey tower, at discounted rates.

Over the past few years, at least 50 companies have taken up offices at the 138-year old bourse, and many more may do so as there is enough space which the exchange does not need for its core operations.NextMAds

A senior BSE executive said the exchange will get at least ₹ 13.5 crore from PJ Towers lessees this fiscal. In the fiscal year ending March, its rental income was ₹ 11 crore. “This income should grow by 10-15% every year,” said one official.

BSE recorded a net profit of ₹ 66.35 crore in first nine months of fiscal year 2013 till December. The stock exchange collected a total income of ₹ 403.32 crore during the period, with a majority of it coming from fees for membership, trading, listing and public issues.

BSE, together with its closest rival NSE, clocked a combined average daily turnover of ₹ 12,588.92 crore in cash segment and ₹ 1.66 trillion in derivatives segment in April. However, BSE had a market share of 16.27% in cash segment and 9.44% in derivatives segment during the month.

The exchange is offering commercial spaces at a monthly rent of ₹ 175- 200 per sq. ft, lower than the prevalent price of ₹ 200-225 in south Mumbai’s Fort area and ₹ 250-325 at Nariman Point, the commercial hub.

Indeed, there are limitations in terms of facilities in the BSE building premises, which restrain the exchange’s management to charge higher rents from its tenants.

Unlike most other business buildings in India’s commercial capital, the BSE building doesn’t offer enough vehicle parking facility in its premises for non-member occupants, owing to safety reasons. sixthMAds

Soon after the terror attacks in Mumbai in November 2008, the BSE building was fortified with ‘Z’ category security control and half a dozen commandos were stationed in the building’s premises permanently.

The exchange was targeted by terrorists for the first time in 1993 when serial bomb blasts in Mumbai claimed at least 300 lives.

“The security infrastructure and controls in the building restricts the scope of expanding vehicle parking facilities in the building’s premises. Otherwise, we could have charged higher lease rates for an A class building like PJ Towers,” said the BSE official.

“It has a total space of around 3,50,000 sq. ft. Of this, one-third has been given on lease to 43 entities. Some of the companies have taken up more than one office,” the BSE official said.

Mostly banks and financial services companies have taken up space at the BSE building. The list includes Union Bank of India, Bank of India and Indian Overseas Bank, General Insurance Council, Stewart and Mackertich Wealth Management Ltd, Kotak Securities Ltd, HDFC Securities Ltd and Edelweiss Securities Ltd, proxy advisory firm Institutional Investor Advisory Services India Ltd and information technology firm Netmagic Solutions Pvt. Ltd, among others.

Media firms UTV Ltd and Zee News have also set up offices there.

According to a December 2012 report of Jones Lang LaSalle India, a real estate consulting firm, the absorption forecast for 2013 is 10–12% above that of 2012, during which Mumbai saw an absorption of 6 million sq. ft of commercial space. “New office deliveries in 2013 will be at the lowest level since 2006, and construction is not expected to pick up until 2015. The completion rate for office projects over the next two years will be much lower than in the preceding three years. Many speculative completions will not see the light of day till 2015-2016,” said the report, authored by Ramesh Nair, managing director—west, of the consulting firm.

An official with one of the banks that has taken office space on lease in the BSE building said, “It makes sense to be in a prime location. We get an advantage of proximity to offices of various authorities and other companies, apart from the ease of connectivity and transport. At the same time, we save cost because the rates in other A grade buildings in south Mumbai are mostly much higher.”

Capitalizing on the trend, BSE is planning to renovate
a few floors in the building over the next two years. “We are getting a lot of enquiries from prospective lessees. The renovation will increase the free area on the floors by around 30% which may further improve our rentals,” said another BSE official. None of the officials are willing to be named.

Excluding the exchange’s own offices and those of its subsidiaries, the BSE building is occupied by 540-odd entities, including tenants and its brokers who got space in the tower in 1980 under the so-called pagdi system. It is an informal arrangement through which the person or entity in possession of an immovable property gets certain agreed amount while transferring the possession of that property in favour of another. Typically, they pay a nominal amount to the owner of the building.

About one-third of the 29-storey BSE tower is occupied by traditional brokers who got space through pagdi.

The exchange used to operate from a different building before the tower was built in 1980, named in the memory of Sir Phiroze Jamshedji Jeejeebhoy, the longest serving BSE chairman, between 1966 and 1980. Hundreds of occupants of the old building, mostly brokers, got space in the tower under the pagdi system.

The Jones Lang LaSalle report cautioned that any significant improvement in occupier demand will only add to the pressure on supply, thereby stimulating further increase of rents and capital values in grade A buildings in prime locations. “Given the basic scarcity of available good-quality, right-sized grade A office stock in the city’s prime locations, rentals are expected to go up in 2013,” the report said.