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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Currently, the average passing rent of Grade A office building at BKC, Mumbai is INR 269 per sqft per month. Thus, we infer that Deutsche Bank’s rent is now aligned with current market average.

The commercial office real estate market in Mumbai has been witnessing similar trends in the last 12-18 months wherein tenants are re-negotiating their contract rents downwards primarily when the lock-in period expires or even earlier in select cases. Key micro-markets such as BKC, Kalina and Lower Parel are witnessing such trends. Some of the recent key transactions negotiated are stated below:

Micromarket Occupier’s Sector Negotiated Rent (INR PSF) Contract rent due (INR PSF) Drop in Rent
BKC Banking Services 275 356 23%
Lower Parel Law Firm 138 159 13%
Lower Parel Insurance Company 175 201 13%
Kalina Transportation 158 216 27%

Source: CRE Matrix

Given a rise in such trends, CRE teams on occupier side have started to show clear preference towards shorter lease terms and lock-in periods to allow frequent review of market conditions.

Average lease terms and lock-ins of few key markets are mentioned below:

Micromarket Average Lease Term (months) Average Lock-in Period (months)
Nariman Point 46 26
Goregaon 54 30
Thane 51 30
Lower Parel 56 33
BKC 59 38
Airoli 93 43

Source: CRE Matrix