New supply of office space in Mumbai — the financial capital of India— declined 23 per cent year-on-year in 2023 to historic low 2.7 million square feet as real estate developers avoided building office complexes in the past few years anticipating fall in demand because of the COVID pandemic, according to Vestian.
Fresh supply of office spaces stood at 3.5 million square feet in the 2022 calendar year. However, real estate consultant Vestian CEO Srinivas Rao expects new supply to bounce back as demand will rise with gradual return of employees back to the office. Besides disruption caused by the pandemic, Vestian noted that a surge in housing demand over the last few years also played a role in lower new supply of office spaces.
Apart from building housing, malls and offices, Realty firms have diversified their businesses and are developing data centres and warehousing projects in Mumbai region to meet demand of such assets.
Fall in new supply of office spaces and rise in demand for workspaces led to a modest rise of 3.8% in rentals during the last year, Vestian pointed out.
Mumbai: Supply-Demand Dynamics
| Year | Supply (Mn sq ft) | Absorption (Mn sq ft) |
| 2018 | 7.5 | 13.8 |
| 2019 | 5.3 | 9.6 |
| 2020 | 4.1 | 5.4 |
| 2021 | 6.5 | 5.4 |
| 2022 | 3.5 | 7.1 |
| 2023 | 2.7 | 8.4 |
Source: Vestian Research
Pan India: Supply Dynamics
| City | 2023 | 2022 | 2023 vs 2022 | ||
| New Completions (Mn sq ft) | % share | New Completions (Mn sq ft) | % share | YoY % Change | |
| Bengaluru | 13.4 | 28% | 12.7 | 27% | 6% |
| Chennai | 6.7 | 14% | 4.7 | 10% | 43% |
| Hyderabad | 13.5 | 28% | 11.3 | 24% | 19% |
| Mumbai | 2.7 | 6% | 3.5 | 7% | -23% |
| Kolkata | 1.1 | 2% | 0.3 | 1% | 340% |
| Pune | 5.3 | 11% | 7.0 | 14% | -24% |
| NCR | 5.3 | 11% | 8.0 | 17% | -34% |
| Total | 48.0 | 100% | 47.5 | 100% | 1% |
Source: Vestian Research
Shrinivas Rao, FRICS, CEO, Vestian, “Strong fundamentals, emergence of other asset classes, and rapid infrastructure development is likely to keep the Mumbai real estate market buoyant. While the supply of office assets has slowed down in the past 3-4 years, it may pick up pace on the back of robust demand amid growing prominence of work-from-office mandates.”
Mumbai, one of the most active real estate markets in India, reported a historic low supply of 2.7 Mn sq ft in 2023, accounting for only 6% of pan-India supply. The supply has been on a downward trend since 2018, further decelerating due to COVID-19 in 2020. However, it increased momentarily in 2021 to 6.5 Mn sq ft, but again continued its fall.
As per Vestian’s latest office market report ‘The Connect’, the city witnessed a supply of 6.2 Mn sq ft in the past two years (2022 and 2023), which was half compared to the office buildings completed pre-pandemic (2018 and 2019). The fall could be attributed to the sudden decline in the demand for office spaces during the pandemic. Mumbai was prominently impacted by COVID-19 and remained a hotspot for a prolonged period. This shook the confidence of developers who anticipated a slow recovery instead of a V-shaped recovery for office markets in the city.
During this uncertainty in the city’s office market, developers re-strategized their portfolios. Other asset classes such as warehousing, date centre, and residential picked up pace on the back of robust demand post-pandemic. This significantly reduced the attractiveness of office assets in the city, leading to a gradual slowdown in supply.
The rise of other metro cities as an affordable option to Mumbai has also played a pivotal role in putting a dent in the confidence of developers in the past 4-5 years.
Weighted Average Rentals
| City | Rentals in 2023(INR/sq ft/month) | % Difference in Rentals Compared to Mumbai |
| Bengaluru | 85.0 | 46% |
| Chennai | 59.5 | 109% |
| Hyderabad | 66.6 | 87% |
| Mumbai | 124.5 | NIL |
| Kolkata | 45.3 | 175% |
| Pune | 76.0 | 64% |
| NCR | 67.0 | 86% |
Source: Vestian Research
Moreover, rentals appreciated further on the back of robust absorption of 8.4 Mn sq ft in 2023, which was the highest post-pandemic. Restricted supply, relatively robust absorption, and reduction in vacancy led to the northward movement of average rentals in the city, increasing by 3.8% annually to INR 124.5/sq ft/month. The rentals are anticipated to appreciate further due to limited planned supply in 2024. However, a healthy pipeline of upcoming supply in 2025-26 is expected to ease the rental bull run a bit.
Pan India: Demand Dynamics
| City | 2023 | 2022 | 2023 vs 2022 | ||
| Absorption (Mn sq ft) | % share | Absorption (Mn sq ft) | % share | YoY % Change | |
| Bengaluru | 15.4 | 25% | 16.2 | 31% | -5% |
| Chennai | 7.1 | 12% | 5.1 | 10% | 39% |
| Hyderabad | 11.8 | 19% | 7.5 | 14% | 57% |
| Mumbai | 8.4 | 14% | 7.1 | 13% | 18% |
| Kolkata | 0.9 | 1% | 1.4 | 3% | -38% |
| Pune | 7.0 | 12% | 5.5 | 10% | 27% |
| NCR | 10.4 | 17% | 10.0 | 19% | 4% |
| Total | 61.0 | 100% | 52.8 | 100% | 15% |
Source: Vestian Research
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