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Commercial rental rates dip with relocation of companies

Less than a year ago, the landmark Ceejay House in Worli, owned by Aviation Minister Praful Patel, saw the country’s highest commercial rental deal when Barclays Bank signed a deal for a staggering Rs 725 per sq ft per month. Today the rates have crashed by almost 50% following the exit of a couple of corporates from the building.

The dizzying heights that rentals in Ceejay House had soared to may be a one-off case but the average rentals in Mumbai have come down by 35 per cent. With expansion plans of companies on hold, a majority of commercial deals in the market today are either lease renewals or cases of companies relocating to cheaper locations. For instance, the global financial institution Credit Suisse is looking to sub-lease a portion of office space in Mumbai that they had earlier earmarked for their expansion plans.

After holding on to their rates for months, the plunging market has forced landlords to finally relent to reduced rentals. Kaustuv Roy, director for Tenant Strategies and Solutions at Cushman and Wakefield, states that due to dip in rentals, at least enquiries from corporates have gone up after a period of brief stagnation. “Many firms especially from Nariman Point or Worli are relocating northwards beyond Bandra-Kurla Complex,” he said.

“There is a drastic drop in expansion of new office spaces. However there is a relocation of firms from office spaces that command a higher rental to those with lower rentals. Rentals have conservatively fallen by 35%. For instance at Nariman Point prices have come down from Rs 550-600 per sq ft a month to Rs 350-400 per sq ft, in Andheri it has come down from Rs 200 per sq ft to Rs 100-120 per sq ft a month,” said Deepak Jain from the real estate consultancy firm Morris and Troy.

The rates in Bandr-Kurla Complex, which command the highest rentals after Nariman Point, too have taken a beating. In November 2008, when Wadhwa Developers paid a mind-boggling Rs 831 crore for a two acre plot in BKC, the prevailing rentals were in the range of Rs 350-Rs 400 per sq ft a month.

“Today we are leasing space at our commercial building Platina at BKC for Rs 250 a sq ft. The last agreement we have had in the complex is with Avanta some eights months back at Rs 333 a sq ft a month. Since then we have signed letter of intent with several other firms at the reduced rentals,” said Vijay Wadhwa.