Mumbai Residential and Office Market Performance Analysis

Rajani Sinha, Chief Economist and National Director, Research, Knight Frank India   The impact of lockdown on office market The nationwide lockdown has brought the hitherto healthy momentum in office market of MMR to a halt. Businesses have become conscious of the impact of the lockdown and have therefore put their expansion plans on hold leading to lower leasing activity especially in Q2 2020. Companies are further looking to save on operating expenses by seeking to renegotiate existing leases. Overall the leasing activity is likely to stay under pressure in the coming months given the economic impact of lockdown on India and global recession forecasted for 2020. Despite a decline in leasing activity, the weighted average transacted rentals grew by 2.2% YoY in H1 2020 as the share of BKC and off-BKC with (2% YoY), and Central Mumbai (3% YoY) was high.  Though there was a reduction in the number of deals from 160 in H1 2019 to 91 in H1 2020, the average deal size increase was primarily owing to larger deals transacted in BFSI and IT sectors.   The Co-working Space operator’s reaction to lockdown Co-working spaces, that had been observing phenomenal rise till end of 2019, were quick to go into a wait and watch mode, as the vacancy in co-working spaces increased as a direct result of the lockdown. Operators are expected to remain cautious about new space take-up in the coming six months further impacting the office space take up.”   The impact of lockdown on residential market The impact of the lockdown has been severe on the residential sector, which was already facing challenges due to slower economic growth, erosion of end user’s financial confidence and challenges of NPAs. The issues are further compounded for both the supply and demand side as lending activities have reduced as financial institutions have become extremely cautious in extending loans. The home sales in Mumbai residential market have witnessed a decline of 45% YoY to be recorded at 18,646 units in H1 2020. New residential launches in Mumbai also saw a 47% YoY decline to 23,399 units. On account of the fall in sales velocity, the Quarters to Sell (QTS) for Mumbai Metropolitan Region (MMR) increased from 9.3 at the end of 2019 to 10.8 in H1 2020.   The measures to revive city real estate Going forward, for the development side of the residential segment, the government’s proactive actions such as extension of subsidy schemes, reduction in stamp duty rates, one-time restructuring schemes and changes to FDI policy will be required for the sector to revive. While for the end users to return to investing in real estate, the government would have to provide long term financial security through growth oriented economic policies.