BKC may see office rents increasing by 40% post upgrade: Report

[] The Bandra-Kurla Complex has toppled the old central business districts in Mumbai to become the top spot of business activity, says a new report by JLL.

With its gleaming office buildings and impressive residential towers, the Bandra-Kurla Complex (BKC) has toppled the old central business district (CBD) in Mumbai to become the top spot of business activity, says a new report.

You are reading: BKC may see office rents increasing by 40% post upgrade: Report

“New developments in the (old) CBD were restricted by the unavailability of land and the older buildings were in disrepair — a majority of office buildings in Mumbai’s CBD are at least four decades old with run down structures arising from poor maintenance” says a report released JLL. The declining appeal of the CBD for occupiers is further reflected in falling rentals and occupier shift, says the report titled Futureproofing 2.0 – Upgrading Commercial Assets to Create Lasting Value.

“The stock of Grade-A office space in the CBD has remained stagnant while that in the SBDs, suburbs and peripheral markets grew rapidly. With submarkets like BKC, BKC Fringe and SBD North, saturating in terms of land availability, the supply of Grade-A office spaces in the next five years is mainly concentrated in the peripheral submarkets,” says the report.

Navi Mumbai accounts for 37% of the upcoming supply in the city over the next five years, mostly for IT/ITeS occupiers.

50% stock in Mumbai’s office space is Grade-A office space

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In Mumbai, the quantum of existing Grade-A office stock that was completed 10 years back stands at 43.8 million sqft. In terms of number of buildings, this is 50% of the total stock in Mumbai.

Mumbai presents a Rs 2,610-crore investment opportunity

The investment potential in upgrading Grade-A buildings in Mumbai is a whopping Rs 2,600 crore, with a payback period of around three years. Such upgrade involves various components ranging from safety and security to human experience and technology. The need for upgrade and the importance of its various components vary across the city. More importantly, the required capex depends on the building in question and its location.

Submarket Investment Opportunity

(Rs crore)

BKC 330
BKC Fringe 130
CBD 480
East Suburbs 290
Navi Mumbai 190
SBD Central 200
SBD North 360
Thane 30
West Suburbs 600
Total 2,610

Source: JLL Research

“Out of the total upgrade potential of over 40 million sq ft, BKC, CBD and West Suburbs markets will remain the key drivers. The human centric design elements of an upgraded office space with better aspects like operational efficiency, operating costs, technology, community, sustainability and  wellness, safety and compliance, make them more appealing for not just the young workforce but instantly heightens the opportunity for investors to retain their clients, increase rentals and enhance their asset value,” said Aditya Desai, executive director and Head of Developer, Investor Services for India at Projects and Development Services (PDS), JLL.

Rental escalation of up to 40% possible

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With the required capex for upgrade varying across submarkets, the potential increase in rentals depend on factors such as planned infrastructure development and proximity to residential neighbourhoods that influence the attractiveness of the submarket to occupiers. The BKC, which is a highly sought- after office destination, offers the maximum scope for rental escalation while peripheral submarkets like Thane offer very limited upside.

BKC offers maximum rental escalation

Submarket Rental range

(Rs psf)

Rental escalation range post upgrade
BKC 165-365 15%-40%
BKC Fringe 115-190 10%-25%
CBD 145-230 10%-30%
East Suburbs 70-125 12%-25%
Navi Mumbai 40-100 10%-25%
SBD Central 145-240 10%-30%
SBD North 80-140 10%-30%
Thane 50-75 8%-12%
West Suburbs 75-150 12%-30%

Source: JLL Research

It is clear that most buildings in the CBD need to be upgraded to remain attractive to occupiers. While the West Suburbs provide the maximum investment potential in upgrade, BKC delivers maximum upsides to office asset owners with rental escalation. With a combined investment opportunity of more than INR 1,400 crores, these three submarkets are the most prominent options for investors looking to capitalise on the upsides of upgrade.

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Category: Lifestyle

Debora Berti

Università degli Studi di Firenze, IT

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