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High rentals in Mumbai bode well for competitors

Acute shortage of Grade A office space coupled with spiralling real estate rates is making Mumbai unsustainable for many in the corporate world, reports Varun Soni.

business Updated: Nov 22, 2007 21:33 IST
Varun Soni

Acute shortage of Grade A office space coupled with spiralling real estate rates is making Mumbai unsustainable for many in the corporate world.



At Rs 500-600 per sq ft per month, prime commercial space (read Nariman Point) in India's financial capital is becoming out of reach for many a corporate entity, forcing them to migrate to suburbs like Navi Mumbai and Gurgaon where rates range between Rs 50-200 per sq ft per month.



Tier II cities like Mohali, Jaipur and Pune, will also reap rich benefits as occupation costs here are pegged at as low as Rs 45-200 per sq ft per month.



Though companies engaged in financial services might have no choice but to take space in Mumbai due to the nature of work that they are involved in.



Experts say that the rise in rates might have enabled Mumbai to achieve the distinction of being the second most expensive office market in the world after London's West End according to a semi-annual global rents survey by real estate consultancy CB Richard Ellis, but this definitely does not augur well for the commercial real estate market in the city in the long run.



It will also act as a deterrent for many foreign investors looking to invest in the city's real estate growth, they say.



Says Anshuman Magazine, Chairman and Managing Director, CB Richard Ellis, South Asia said, "This is reflective, on the one hand of the great performance of the economy but on the other of acute shortage of prime office space in the city of Mumbai. Such high cost of office space in the financial capital of an emerging country like India could be a deterrent for investments. Of course, corresponding support in infrastructure needs to be augmented with a sense of urgency. I would rather see Mumbai being the second most economically developed city providing the best infrastructure in the world instead of having the second highest rentals globally."



Vivek Dahiya, Director, DTZ feels that the areas that will benefit because of the prevailing high rates in the Mumbai CBD will be Western Expressway, LBS Marg, Powai and Goregaon.



"Every low-cost commercial space in Mumbai stands to gain. BPOs and call centers have always preferred Tier II cities and suburbs, but the financial services companies (who have to be based in Mumbai) will shift to these areas," he says.



Though the top ten most expensive markets list by CB Richard Ellis has remained unchanged over the last six months, several cities' rankings have changed.



Mumbai's Nariman Point, at $189.51 per sq ft per annum, rose three places to second. At $180.78, Moscow joined the top five, jumping two spots to fourth overall.



Tokyo's Inner Central Five Wards and Outer Central Five Wards fell to fifth and sixth, respectively.



Singapore led the list of markets with the fastest growing office rents, with occupancy costs increasing 83 per cent during the past year.