Office buildings in Mumbai’s Bandra Kurla Complex command higher prices than Manhattan - Hindustan Times
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Office buildings in Mumbai’s Bandra Kurla Complex command higher prices than Manhattan

Mar 19, 2024 09:26 AM IST

Uday Kotak's response to the New York office distress deal underscores the impact of COVID on the commercial real estate landscape in the US, say realty experts

Uday Kotak, the founder and director of the Kotak Mahindra Bank, has expressed surprise over a building in New York being sold at a massive 70 per cent discount to its previously sold price.

Uday Kotak's response to the New York office distress deal underscores the impact of COVID on the commercial real estate landscape in the US. REUTERS/Amr Alfiky/File Photo(REUTERS)
Uday Kotak's response to the New York office distress deal underscores the impact of COVID on the commercial real estate landscape in the US. REUTERS/Amr Alfiky/File Photo(REUTERS)

According to a post shared by investor Nilesh Shah on X (formerly Twitter), the building was last sold for $150 million against its previously sold cost of $500 million. Uday Kotak responded to the post which read, “New York commercial office building going at Rs~ 16000 per Sq Ft” by saying that this is less than Mumbai's BKC. 

Also Read: Uday Kotak's reaction on New York property price being half of Mumbai's BKC

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"A Manhattan office tower just sold at a shocking 70% discount to what it last sold for. The 778k sq ft tower at 222 Broadway sold for $150M. The building last sold for $500M back in 2014," Nilesh Shah shared, adding, “Even NYC is seeing massive distress and destruction in values for prime commercial real estate office buildings.” 

In his comment, Uday Kotak said that at 16,000 per sq ft, the price of the said New York property is less than half the rate at Mumbai's upmarket Bandra Kurl('')!"

Commercial real estate markets in the US and India are different

Real estate experts said that the deal underscores the profound impact of the pandemic on the commercial real estate landscape in the US thanks largely due to employees showing reluctance to return to offices situated in major cities, despite corporate mandates for return to work.

Veera Babu, Managing Director, Tenant Representation, India, Cushman & Wakefield said that the confluence of higher interest rates and a soaring default rate has precipitated a trend wherein properties are being offloaded at drastically reduced prices in the US.

However, the commercial markets in the US and India are different.

“The New York Region alone boasts approximately 750 million square feet (msf) of A Grade office space, whereas across the top 8 Indian cities, the aggregate A Grade office stock amounts to about 750 msf. To put it into perspective, the Bandra-Kurla Complex (BKC) in Mumbai, comprises about 11 msf of office stock, and we can't compare it with Manhattan, which boasts about 420 msf. The rentals are also significantly different,” he explains.

Rentals of commercial buildings in Bandra Kurla Complex

Regarding rentals within BKC, rental rates fluctuate between 225 and 340 per square foot on average (per month), while capital values range from 35,000 to 60,000 per square foot. Average gross rentals in Manhattan go upwards of $70 per sq ft annually, according to data shared by Cushman & Wakefield.

Raja Seetharaman, co-founder of Propstack, is of the view that these instances clearly indicate that commercial real estate in the US (in particular) and Europe have been more severely impacted by COVID and flexible working models. Some of the biggest institutional investors have defaulted on mortgages. Many large corporates have scaled down their real estate portfolio in the US and WeWork has filed for bankruptcy.

“In comparison, commercial real estate has been resilient in India with healthy growth indicators in some markets. Many corporates are renewing their leases or expanding and WeWork continues to grow in India. In the US, steeper interest payments, tighter bank lending and declining asset values have negatively impacted the industry. Borrowers are left with no choice but to refinance at higher interest rates or sell at a steep discount. And this transaction may be the first of many such discounted deals,” he adds.

Indian office market shows resilience

Arpit Mehrotra, Managing Director, Office Services, Colliers IndiaThe India office market has shown resilience and adapted to the evolving needs of occupiers. With return-to-work picking up pace, both occupier and developer sentiment remain upbeat. Vacancy levels, which are currently at around 17% can further drop down to 15% in the post-pandemic era.

Also Read: Bandhan Bank purchases 12 commercial units in Mumbai's BKC for 135 crore

“Capital values of premium commercial developments in most major cities have been on the upswing. Prime micro markets such as BKC in Mumbai have witnessed noticeable capital value appreciation in recent times, with commercial asset transactions taking place at even 35,000 per sq.ft and above as well,” he said.

Global office market trends

Prices of commercial properties in the US have dipped in the face of higher interest rates and soaring vacancy rates since the pandemic.

A media report quoted the US Treasury Department’s Financial Stability Oversight Council report said that property demand in the US may take time to stabilize as tenants navigate remote-work decisions and adjust how much space they need.

Also Read: Axis Bank leases 81000 sq ft in Mumbai for five years at a monthly rent of 85 lakh

It noted that a ‘slow return to densely populated urban office centers could reduce the desirability of office properties located there and even nearby retail space.’ With most people working from home and spending their money in peripheral towns, it is the outer boroughs that have really flourished,” it said.

Also Read: Mumbai is now among the world's top 10 luxury real estate markets: Knight Frank Wealth Report 2024

It should also be noted that Mumbai’s rank has improved to 8th on Knight Frank’s PIRI’s index in 2023 as compared to 37th rank in 2022 which is a phenomenal jump of 10% year-on-year growth in terms of annual luxury residential price rise. This jump has marked a place for Mumbai in the top 10 leading luxury residential markets.

Also Read: Barclays leases over 64,000 sq ft of commercial space for 5 years at a monthly rent of 2.08 crore per month in Mumbai

Improved business sentiments and positive economic outlook is fostering heightened demand for office spaces in India and signaling confidence among foreign origin companies seeking to establish their capability centers in India.

Also Read: Realtors, financial institutions optimistic about growth in real estate sector: Report

 

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