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Real asset: BKC is ready for the challenge

While Nariman Point has maintained its commercial prices over time, BKC has not attained critical mass for operators and occupiers, and is seeing a more gradual appreciation in prices, writes Anuj Puri.

india Updated: Dec 17, 2007 22:46 IST

Nariman Point has been the commercial hub for Mumbai from the colonial times. One can attribute this to the nature of the city, which was dependent on its port for its economy. Over time, Nariman Point became the commercial capital of the country and still represents a fair share of Mumbai’s economy.

Over time, the Government recognized the need to decongest Nariman Point and proposed alternative CBDs (commercial business districts). An early spot among these was the Bandra Kurla Complex (BKC). BKC’s edge over other proposed sites was its strategic location between the airport and Nariman Point. Also, it represented a clean slate.

As of today, Nariman Point is still the first stop for any international corporate entering India for the first time.

While Nariman Point has maintained its commercial prices over time, BKC has not attained critical mass for operators and occupiers, and is seeing a more gradual appreciation in prices.

In terms of transaction values vis-à-vis rates for commercial rentals and outright purchases, Nariman Point continues to rule the roost, commanding rental rates between Rs. 180-300 per square foot per month. as compared with the Rs. 150-250/sq.ft. rates at BKC. However, the picture is fast changing as BKC is gradually weighing down the market seesaw heavier on its side. Purchase rates would be in the same range of Rs 20,000 to Rs 30,000 per sq. ft. for Nariman Point and Rs 18,000 to Rs 25,000 for BKC.

In terms of residential properties, Nariman Point currently fetches Rs 25,000-40,000 per sq. ft., with a higher ante for sea-facing properties.

Commercial developments in the 370-hectare BKC area include private and government offices (state and central), banks, wholesale establishments, etc. So far, 19 hectares of the area have been developed in ‘E’ Block and a number of office buildings have been constructed. These buildings together provide an office space of 174,000 sq. metres.

Along with the developments in ‘E’ Block, development has also moved to the adjoining ‘G Block where a new international finance and business center is planned. Recent land sales have established that the Bandra Kurla Complex is the next Nariman Point. It is now Mumbai’s second business district, not the secondary one.

While Nariman Point now has liaison or representative offices, Bandra Kurla Complex is the preferred destination of corporates in need of larger floor spaces. Built-up real estate rental prices in BKC are almost neck and neck with Nariman Point. Also, BKC has more built up space available as compared to Nariman Point -- 2.91 million sq. ft. in Nariman Point against 15 million sq. ft. at BKC, and with far better connectivity, both existing and planned.

In other words, BKC is Mumbai’s new frontier in terms of office space. However, the permissible FSI or floor space index in BKC was a serious limitation to its growth – until recently.

FSI dictates how much development can take place on an empty plot.

To illustrate – with an FSI of one, one can build 100 sq. ft. on a plot of the same size. On March 13 2007, the MMRDA (the state agency promoting BKC) hiked this area’s FSI to four -- effectively doubling it.

The enhancement of FSI in this vital commercial location directly translates into more opportunities for developers to build quality buildings. This, in turn, will create the much-needed supply in the Mumbai real estate market.

This brings forth a serious question -- will the increase in permissible FSI in Bandra Kurla Complex translate into an increased market value for properties there? There will be a short-term increment in land values pertaining to BKC due to the FSI benefit.

However, the anticipated supply of around 4.5 million sq. ft. expected to be ready for occupancy in 2 to 3 years within the BKC micro-market will then result in a decline in office space rentals.

At current prevailing rentals, there is no value for occupiers in shifting operations from South Mumbai to BKC since the rentals of BKC and Nariman Point are more or less at par with each other.

However, with the slated new supply due to hit BKC market in 2 to 3 years, there will certainly be an exodus of sorts from South Mumbai to BKC.

Chairman & Country Head, Jones Lang Lasalle Meghraj