Office tenants renegotiate rental deals downwards in Mumbai

But Bengaluru and Hyderabad are seeing a different trend, given limited supply in these cities

Late last month, Germany-based Deutsche Bank renegotiated the lease rental for its corporate office of 90,000 sq ft at The Capital, a premium commercial building at the Bandra-Kurla Complex (BKC) in Mumbai.

It did so by 15 per cent, from a monthly Rs 306 a sq ft to Rs 265 a sq ft. Its earlier agreement started in the year 2012 at Rs 278 per sq ft per month, with a lock-in period until March 2018, the annual escalation being 10 per cent till it reached Rs 306 a sq ft. And, the lock-in period had been extended until March 2022, sources said.

"The average rent of a Grade-A office in BKC, Mumbai, is Rs 269 a sq ft per month. Thus, Deutsche Bank’s rent is now aligned with the market average," says Abhishek Tiwari, co-founder of CRE Matrix, a realty data analytics entity.

Deutsche is not alone. With a number of options and reduced lease rents, office tenants in Mumbai and the Delhi region are renegotiating their rents downward when their lock-in periods are close to expiring. Even earlier in some cases, experts say.

According to CRE Matrix, clients have renegotiated rents by 13-27 per cent in recent months in the Mumbai market. For instance, Star Shipping renegotiated its rent downward by 27 per cent in the Kalina area.

Experts say the office market recovered in 2011-12 after a sharp decline in 2009, in the wake of a global financial slowdown. "Most tenants entered into agreements at peak rates in 2012. As the lease agreements are expiring, they are renegotiating it downwards, as rents are lower now," said Tiwari.

Tiwari said there were options available for clients and property owners are also not ready to leave marquee tenants which occupy large spaces.

Ashish N Shah, chief operating officer at Mumbai-based Radius Developers, agrees. "The market has seen correction between 2011 to 2016. Most occupants were bearing the brunt of escalations as well from the 2011 numbers. Hence, when the opportunity arose, they have gone back to renegotiate their rentals, in line with market rates," he said.

Lease rents in Mumbai have gone down by 10-15 per cent in this period.

Shah said another reason is that companies are looking at newer ways to reduce office costs. With the promoting of policies like hot-desking and work-from-home, there is a correction in the requirement for office space.

Ashok Kumar, managing director of Gennext Partners, a commercial property services firm, says the trend is different in Bengaluru and Hyderabad, where developers are asking for higher rent after the expiry of lease agreements, as supply is limited in these cities.