Office property deals in Mumbai affected by valuation mismatch
Absorption of office spaces in Mumbai, the commercial capital of the nation, has recently catered all the attention due to its sudden slackening. The waning of the economy has adversely affected the sale and lease of big ticket commercial properties in Mumbai that worth thousands of crores.
Slowdown in the sale of big-ticket commercial possessions is mainly triggered by valuation mismatch and regulatory concern. There have been numerous funds appraising the premises which apparently require few clarifications on certain regulations on government buying of property under the FDI route. However, it is likely to consume more time than expected.
Reason for decrease in office rentals
According to JLL reports, the present sluggishness in the real estate space has caused a lag in concluding the deals. This has injected discontent among the potential buyers and builders. End-users who bought apartments at very high rates in 2008, cannot sell them at same valuations at present, since buyers are looking for low valuations in respect to present market rates.
Slump in office rentals also propels the owners to sell the major properties in the city. According to property consultants, at present there is Grade-A office stock of 67 million sq ft together with vacancy of 13 million sq ft. Increase of office vacancy rate to 19% makes it the 14th consecutive quarter of increased vacancy.
Common problem of commercial real estate
The stalling of the economy, together with the high anticipation of the sellers are the key drivers for the downtrend of big ticket commercial transactions. The real estate market of Mumbai is not very liquid and only certain institutional players are searching to purchase income generating properties. However, the issue is mainly fuelled due to the high anticipation of the sellers.
To add to it, property consultants further corroborate that absorption of home spaces have reduced to 35% in 2012 in comparison to 2011, when the overall absorption was 9.6 million sq ft for the year. In 2013, the absorption levels are likely to exceed to 40% in comparison to the last year.
Example
The plans of Air India to lease its headquarters in Nariman Point, have been a major setback because of valuation mismatch, existing between the buyers and sellers. To add to it, the 1.2 million sq ft Equinox Business Park was also stuck for more than a year due to valuation mismatch.
Mismatch exists between the seller and the amount investors want to pay. As the national and international economies struggle to recover, vacancies at numerous commercial properties across Mumbai have gushed up to 30-50% from 14-15% in 2009.
Global property consultants further confirm that transaction activities in commercial office properties in Mumbai have dropped to 23% in the second quarter of 2013, in comparison to the last quarter. At present, investing in big-ticket transactions can be a risky venture for the investors and may likely not yield fruitful returns. According to experts, guaranteed returns cannot be assured from big ticket commercial transactions in Mumbai , at least in the present quarter.
