In 2012, the Mumbai residential real estate market showed signs of revival after nearly 18 months of sluggishness, driven by increase in demand and steady pricing. The best-performing submarkets were Parel, Wadala, Dadar (E), Sewri, Chembur and Tilak Nagar.
Generally, 2012 saw a significant increase in absorption over 2011 in these markets, in which capital values grew in the range of 9–10% y-o-y during the year. The increased demand for residential units came from robust commercial office market activity in south central Mumbai. Also, these sub-markets benefited from more attractive pricing when compared to premium addresses of South Mumbai.
The 2012 performance of markets such as Colaba, Cuffe Parade, Mumbai Central, Worli, Prabhadevi, Lower Parel, Dadar (W) and Mahalaxmi did not match that of 2011. Absorption was 10-15% below 2011 levels, although capital values rose in the range of 3-4%. The anticipated price correction did not materialize in these locations, which saw a moderate number of new launches when compared to South Central Mumbai. South Central Mumbai continued to benefit from competitive pricing and its location advantage.
With better clarity on the new DCR regulations, 2013 will see more projects launch on schedule, with an implied assurance that developers will focus on meeting the the committed timelines. Given the increased demand, the high prices of land and the significant increase in construction costs, 2013 will not bring any major correction. Though the question of what the State Government will do in terms of providing the infrastructure required to support the increasing population, the inherent demand for residential space in Mumbai will remain strong in 2013.
· Mumbai Commercial Real Estate
In 2012, SBD North (Andheri) saw increased vacancy levels, which rose to 26% from the 17% noted towards the end of 2011. Office space rentals at Nariman Point remained stable for Grade A buildings, while rentals for Grade B buildings showed a marginal decline. In an environment of uncertainty, transactions took longer to complete as corporate occupiers evaluated their options carefully, with many choosing to postponing decisions. Rents in most of Mumbai’s micro-markets stabilised in 2012, although vacancies remain high.
Generally, the absorption forecast for 2013 is 10–12% above that of 2012, during which Mumbai saw an absorption of 6 million square feet 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.
Any significant improvement in occupier demand will do nothing but add to the pressure on supply, thereby stimulating further increase of rents and capital values in Grade A buildings within the 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. A wait-and-watch approach is contra-indicated for occupiers who are intent of opening offices in prime areas. Most of the micro-markets are now showing convincing indications of having bottomed out.
· Mumbai Retail Real Estate
2012 saw the full-fledged deployment and functioning of Marketcity Kurla and R City Phase II. The year saw the re-emergence of high streets, given the increasing demand for such spaces by retailers. High streets such as Horniman Circle, Colaba, Turner Road, BKC, Chembur, Borivali LT Road and Andheri Link Road saw an increase in demand and rental values in 2012. Retailers stayed away from Grade B malls, in spite of lucrative deals offered by the developers.
In 2013, mall rentals are likely to see a nominal increase. With the high street rentals already very high, such spaces have become unaffordable and unviable for many retailers and will see decreased action in 2013 unless rentals become realistic. Markets such as Navi Mumbai, Andheri (W), BKC are expected to see an increase in rentals in 2013, while markets such as Bandra Linking Road, Parel and Ghodbundar Road (Thane) will see rent stabilization. Over the next couple of years, many retailers will reduce their store sizes.
2013 will see malls such as Viva City in Thane becoming operational. The retail development business will see the emergence of strong Pan India developers and more institutional money in 2013.
Going forward, mall supply in Mumbai will dwindle, given that most developers are focussing on residential. FDI in retail is not expected to have any positive impact on rentals for at least the next 12 months. Going forward, retailers will not commit to space unless they see approvals in place and actual construction on site. Retailers will also take more time to execute agreements, taking the route of detailed analyses before closing transactions.
By Ramesh Nair, Managing Director - West, Jones Lang LaSalle India
