2017 in Review: Mumbai Commercial Real Estate

2017 in Review: Mumbai Commercial Real Estate

Before we dive into our predictions for 2018, let’s look back on what we wrote a year ago, Mumbai’s Commercial Real Estate Outlook for 2017, to see where we were wrong and right:

Mumbai Retail (Shop, Restaurants, Showrooms, Malls etc.) Properties for Rent

What we said?

Demonetisation would greatly impact & would lead to churn driving monthly rentals down for retail properties in Mumbai.

What actually happened?

Not as many shops, restaurants etc. went out of business because of demonetisation so churn was minimized and after let’s say June, more and more were starting again to look for shops for rent or restaurants for rent for their businesses.  Also to note, the demand for cafes & restaurant spaces increased drastically in Q4 of the year taking up any slack in the demand for retail spaces.

Where we got it wrong?

Within months after demonetisation, people started using cash again where specifically black money could easily be used for a 6,000 rupee dinner or a 10,000 rupee saree etc. It’s the larger ticket items like cars and property that were really impacted.

Mumbai Office Space for Rent

What we said?…. Office space for rent in Mumbai would be the strongest performing category where monthly rentals for office space for rent would remain unchanged.

What actually happened?…. We were largely right. To note, coworking spaces in Mumbai helped support prices in many of the areas, far more than most anticipated with now Mumbai having nearly 150 coworking spaces of which many of the firms have multiple locations and the sizes of the office spaces for rent they are taking up are only growing.

Mumbai Commercial Office Space for Sale in the Primary Market

What we said?…. That prices for brand new commercial properties would only come off a bit, call it as much as 10%.

What actually happened? …. We would say that we were largely right, but perhaps not for the right reason. Prices of commercial properties would have come off more, but many developers decided to take their developments of the outright market and only rent their newly developed properties in Mumbai as there was 1) little demand to buy properties in Mumbai over 2cr, which is still the case 2) REITs and large institutions popped their heads pretty aggressively in 2017 looking for pre-lease commercial buildings for rent – the idea being that it’s more profitable for developers to now rent out their office buildings and then sell them once filled at a premium 1, 2, 3+ years down the road.

Mumbai Commercial Office Space for Sale in the Resale Market

What we said?…. Prices for office commercial property for sale would come off 10-15%.

What actually happened?…. It’s hard to gauge as so few outright transactions occurred. Put it another way, in 2017 fewer than 5% of inquiries at Jagaha.com were those looking for properties for sale. Having said that, the prices for Mumbai commercial property in the resale market did come off a tad.

Mumbai Shops (retail) for Sale in the Primary Market

What we said?…. Prices for brand new retail spaces for sale would come off by 10-15%.   

What actually happened?…. As per the above, many developers instead moved their commercial properties for sale to commercial properties for rent, and retail spaces were no different.  So again, hard to properly gauge, but prices did come off a tad.

Mumbai shops (retail) for sale in the Resale Market

What we said?…. Shops for sale prices would drop by 5% to over 20% depending on whether the commercial space is in a core commercial location due to demonetisation & the popularity of e-commerce.

What actually happened?…. The worse case didn’t happen (yet) and property prices in the retail segment largely held up only to come off on average about 10% in the City. Again, like all property for sale in Mumbai, there really weren’t a considerable amount of transactions. So when the transactions pick up we will get a better idea and we could easily see a further drop in 2018.

Where we got it wrong?…. We were correct in that e-commerce sites like Amazon & Flipkart did put pressure on retail shops in Mumbai and elsewhere, but what we underestimated was the level of demand for cafes, restaurants and bars that would take the commercial spaces once the retail business would go vacant and hence there were few places in the City where retail property prices came off more than 20%.