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Mumbai’s commercial rental price sees correction

Business

Mumbai’s commercial real estate market registered a price correction of 5-15% across all micro-markets in Q$08, primarily due to meltdown in the financial sector.

A report released by real estate consultant firm Jones Lang LaSalle found that there were a number of instances in the city wherein quoted rentals by landlords have come down to about 75–80% of what they were six months back.

Yields across these precincts rose by 65 basis points to 12.07% due to the lowering valuations of real estate properties.

The report titled ‘Asia Pacific Property Digest’ observed that corporates are under tremendous pressure to cut cost and operate in the most efficient way.

“Occupiers are currently implementing all means of cost cutting such as reducing headcount, consolidating the number of branches/offices and moving out from high-cost locations to low-cost destinations. All these efforts, aimed at cost-effective operations are resulting in restrained demand for office space,” it added.

According to the report, Mumbai’s CBD (Central Business District), SBD (Secondary Business District) Central and SBD North registered completions of a total of about 689,000 sq ft of space in Q408. This pushed overall vacancy levels to 4.78% compared with 1.11% at end-2007. Net absorption of about 3.8 million sq ft was recorded in full-year 2008 against the total completions of about 4.4 million sq ft.

About 7.0 million sq ft of space is estimated to be completed in 2009 in the precincts of CBD, SBD-Central and SBD-North. “There are at least 15 million sq ft of commercial real estate blocked across Mumbai and Thane district.

In the retail space, we estimate that around 2-3 million sq ft of space have been stalled. The reasons are a drop in overall demand, a severe liquidity crunch, generalised uncertainty in the market and the non-viability of many projects, deriving from the fact that some developers bought land at high prices and unable to sell at cheaper prices,” said Sanjay Dutt , CEO, Jones Lang LaSalle Meghraj.

“Considering the massive supply in the pipeline and decreasing demand from occupiers, developers will face a tough time in closing pre-commitment deals in under-construction projects. This demand–supply mismatch will lead to many project completions being delayed,” the report said.

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