Andheri West – What makes it the preferred office and housing destination for developers, investors and homebuyers?

Andheri_ West

Andheri West has witnessed a phenomenal Real Estate transformation over the last 15-20 years. Starting with the Mumbai International Airport and Mumbai suburban local train station to Mumbai’s first Metro Line, two upcoming metro lines and upcoming Coastal Freeway. All these infrastructure developments shall help connect Andheri to all other parts of Mumbai – Northern suburbs, South Mumbai and Eastern Suburbs. Andheri West is one of the prime examples among Mumbai City Micro-markets which boasts an amazing mix of Office buildings, Shopping Centers, Retail High Streets and High-end Residential. Andheri West’s population is approx. 400,000 with about 100,000 households having an average monthly income of INR ~150,000. The housing market in Andheri West has always been buoyant and continues to witness the same trends given consistent new job creation and quality housing development. In 2019 and 2020, Andheri West witnessed housing sales of ~2,200 units and ~1,500 units respectively.

Andheri_West

The total commercial office stock at Andheri West stands at about 4.5Mn sqft. However, there are a greater number of Grade B office buildings in Andheri West compared to Grade A buildings. Given the lack of new Grade A office supply in Andheri West, secondary (older) office sales market has been more active compared to the primary office sales market among investors. The offices market in Andheri West has historically been an investor driven market and we foresee the same trend to continue. Andheri West Offices Capital Values appreciated by 15% in the last 5 years alongside rental yield of approx. ~7%, giving the investor a handsome annual return of ~10% per year. We strongly believe investors will prefer investing in new Grade A buildings compared to older supply. Five new Grade A commercial office buildings are under various stages of construction, totalling to approx. 900,000 sqft. In the past, both occupiers and investors have shown preference for offices sizes up to 2,000 sqft carpet area, primarily because the key occupier sectors have been BFSI, Media & Entertainment, CAs, Lawyers, etc.

Contrary to common belief that Bandra-Khar Linking road is the most active High Street in Mumbai, we would like to differ in opinion. We believe High-Streets of Andheri West have a wider spread not only in terms of size but also in terms of number and quality of retailers. Andheri West High-Streets can offer you everything from clothing to electronics, from jewellery to automobiles, from F&B to fashion accessories. Given the thick housing market, most private and PSU Bank have multiple bank branches and ATMs in Andheri West. Similar to the office asset, the high-streets in Andheri West have offered handsome annual returns of ~12% to its investors.

Related Article: BKC displaced Nariman Point as Mumbai’s CBD! Read on to know why BKC won’t be dethroned in the next 5-7 years.

Covid-19 has only augmented the need for mixed developments and self-sustained micro-markets with all asset types including offices, retail, housing, hospitality, healthcare, education etc. More and more people want to reduce their commute time, Work from Home and aspire to reside in vicinity of all possible recreation choices.  We believe Andheri West is one of the best micro-markets in Mumbai that offers all the above to not only home buyers but also to office commuters. To summarize, solid existing & upcoming infrastructure, robust housing demand, significant presence of high-end Retailer brands in Malls and High-Streets and growing office market, makes Andheri West one of the most attractive real estate investment markets for long-term investors.

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The ‘Mumbai’s Next CBD’ Debate Settled

BKC as CBD

BKC displaced Nariman Point as Mumbai’s CBD! Read on to know why BKC won’t be dethroned in the next 5-7 years.

Bandra Kurla Complex (BKC) has witnessed a phenomenal transformation over the last 20 years. The State Government set the ball rolling by appointing MMRDA as the special planning authority to develop BKC (Bandra Kurla Complex) as an alternative to the erstwhile CBD (Central Business District) – Nariman Point.

After initial reluctance, some of the Private and PSU Banks and companies shifted their headquarters to BKC. The National Stock Exchange opened its headquarters in BKC in 2001. Soon after, developers realized the potential and picked up land parcels in the region to launch multiple Grade A+ commercial projects. The total stock at BKC stands at about 18 Mn sqft as on year-end 2020. Diamond Bourses (~2 Mn sqft) opened its doors in year 2010. As of today, some of these Grade A+ commercial projects command the highest rent in the country for office space.

BKC currently houses some of the biggest Indian and International businesses including Amazon, Netflix, GIA, Bank of America, GIC, Google, Novartis, Pfizer, Wework, Kotak Bank, National Stock Exchange, SEBI, ONGC etc. These occupiers employ more than 200,000 people who commute to BKC daily, fuelling the growth of social infrastructure such as restaurants, gymkhanas, schools, hotels, luxury housing projects etc. Reliance shall move its headquarters to Jio World Centre, a 7Mn sqft convention centre which is expected to house office spaces, luxury mall, hotels, a performing theatre, convention centre etc.

One of the most well-connected suburbs of Mumbai city, BKC is also the epicentre of most of the major existing and upcoming infrastructure projects – Mumbai Highways, upcoming Metro lines, upcoming Bullet train project, SCLR, Bandra-Worli Sealink, upcoming Coastal freeway etc. Such a central location advantage with convenient connectivity to Northern suburbs, South Mumbai and Eastern Suburbs gives Bandra a big edge over any other micro-market. BKC is also surrounded by prime residential localities such as Bandra West, Khar West, Santacruz West on the West and Chembur, Wadala and Vikhroli on the East. Existing physical Infrastructure makes it easier for residents in these localities to easily commute to BKC. Nearly 85% of all senior employees at BKC reside in these neighbouring suburbs.

We foresee further development in and around Bandra Kurla Complex not only for office complexes but for retail malls, cinemas and hotels over the next 5-7 years. Around 4-5 Mn sqft more Grade A+ commercial office projects are planned which will generate about 50,000 new jobs in BKC over the next 5-7 years. Till then, we can comfortably shelve the case file of ‘CBD of Mumbai’ with a seal of BKC on it.

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L&T Seawoods rents out 52,391 sqft to Fleet Management for record rent of Rs 95 per sqft per month in August 2017…

Fleet Management has taken 52,391 sqft built-up area in L&T Seawoods Grand Central, Navi Mumbai in first week of August 2017. Fleet Management will be paying Rs95 per sqft per month at an annual pay-out of Rs 6 crore to the landlord, L&T Seawoods for 5 year lease term. The lock-in period for tenant is 3 years while the landlord is locked in for the entire 5 year lease term. Additionally, tenant has to pay 8 months security deposit with additional tranche of security deposit at time of rental escalation after 36 months to match the prevailing rental. Tenant will be facing escalation of 15% after 36 months. Tenant gets 34 parking lots which would be approx. 1 car park per 1500 sqft.

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Watson Pharma leases 1.05 lakhs sqft in L & T Seawoods Grand Central, Navi Mumbai at record rent of Rs 95 per sqft per month. Fleet Management also leased 52,391 sqft in same building at 95 Rs per sqft per month in Aug 2017

Watson Pharma has leased 1,05,397 sqft built-up area in L & T Seawoods Grand Central, Tower 2, Navi Mumbai in first week of September 2017. Watson Pharma will be paying Rs 95 per sqft per month at an annual pay-out of Rs 12 crore to the landlord, L & T Seawoods for 10-year lease term. The tenant has negotiated 6-month rent free period for fit-outs. The lock-in period for tenant is 5 years while the landlord is locked in for the entire lease term. Additionally, tenant has to pay 6 months security deposit with additional tranches of security deposits at time of rental escalations to match the prevailing rental. Tenant will be facing escalation of 18.7% after 36 months. Further, Watson Pharma’s parent Teva is expected to rent an additional space of around 28,000 sqft built-up area in the same tower.

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Office market opens up to Toddlers!

Crèches / Day-care Centres open up across all major commercial centres in Mumbai…

As per the Maternity Benefits (Amendment) Act, 2017, every commercial office establishment having fifty or more employees shall be mandated to have a crèche facility / Day-care centre within such distance as may be prescribed, either separately or along with common facilities. Further notifications on distance, location etc. of such day care centres are expected soon.

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Co-Working spaces on the rise in BKC, Mumbai.

After Wework, Quest Office, Awfis leases 24k sqft in BKC at MG or 42% revenue share.

Awfis, a co-working office space provider leased 23,648 sqft in Crescenzo, a commercial office building in Bandra Kurla Complex in 1 st week of August 2017. Awfis will be paying higher of minimum guaranteed initial rent of Rs 125 per sqft per month or 42% revenue share to the landlord DKJ Shelters. IDFC was the previous occupant at the said premises. Awfis negotiated 3 months’ rent-free period in the 60 months lease term to complete fit-outs in the leased premises at its own expense. The lease rent will increase by 9.6% to Rs 137 per sqft per month after 1 year. Additionally, the tenant has to pay common area maintenance charges which are currently estimated at Rs 10 per sqft.

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Commercial Office market continues to remain an “Occupier Market” as occupiers renegotiate rentals downwards. Deutsche Bank generates Annual Savings of INR 5 crore in rentals by renegotiating its current lease downwards in BKC…

Deutsche Bank’s CRE team has renegotiated its lease rental for its corporate front office of 90,000 sqft at a premium grade A commercial building in Bandra-Kurla Complex (BKC) by 15% from INR 306 per sqft per month to INR 265 per sqft per month. Deutsche Bank executed an addendum agreement on March 31, 2017. Deutsche Bank’s previous agreement commenced in year 2012 at initial rent of INR 278 per sqft per month with lock-in period until March 2018. The current rental was INR 306 per sqft (post its first escalation of 10%). Although the contracted rental has been reduced by 15%, the lock-in period has been extended until March 2022 from the existing lock-in period until March 2018 benefiting for the Landlord in terms of assured tenancy by Grade A occupier.

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Mumbai’s CRE Market gathering steam… Zydus Healthcare buys Walia Business Park at Goregaon for INR 172 crores.

Zydus Healthcare bought the Walia Business Park at Goregaon East, Mumbai in fourth week of March 2017 for total pay-out of INR172 crores. The said property was lying vacant since last two and half years despite receipt of occupation certificate in Oct 2014 and was mortgaged to SBI in June 2015. The 2 basements + 2 podiums + ground + 10 floors building, admeasuring 79,832 sqft in carpet area is right on the Western Express Highway, Goregaon. The purchase price on carpet area is INR 21,545 per sqft and presuming building efficiency of 63%, the purchase price on chargeable area would be INR 13,570 per sqft.

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Netmagic signs a lease in perpetuity with Hiranandani and Balaji JV for INR 321 Crore in Mumbai, biggest in last 2 years

Netmagic has entered into an agreement in March 2017 with Hiranandani Group and Balaji Tele-Developers with total pay-out of INR 321 crores to develop a 2,86,691 sqft IT/ITeS building in Lighthall, Hiranandani Business Park, Chandivali, Mumbai. This transaction is a perpetuity lease at a one-time price of INR 11,198 per sqft with annual lease rent of INR 1.00 per sqft. Presuming 14% discount rate, the deals NPV would be at one-time price of INR 10,850 sqft as the total consideration of Rs 321 crores shall be made to the developers in a staggered manner over the next 13 months. We opine that Netmagic has negotiated a sweet deal primarily for two reasons: 1) they are investing in a building of their choice and specifications and 2) at a lower price as compared to the prevailing market capital values of INR 13,500 – 16,000 per sqft in and around Powai. The prevailing market capital values are derived using prevailing cap rates for fully leased commercial office assets of ~8.5 – 9.0% and current average rental values of INR 100-120 per sqft per month in and around Powai.

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