by datta Nighut 
1. Introduction to the Commercial Real Estate Sector in Mumbai
The commercial real estate sector plays a crucial role in the functioning and economy of any metropolis, with its significance being even more pronounced in a city like Mumbai. Comprising properties such as office spaces, retail establishments like shopping centers and high-street shops, and industrial, technology, and warehousing properties, the commercial real estate sector is valued at an estimated ₹2 trillion.
Furthermore, Mumbai is home to India’s largest office space market, which is spurred by the presence of a plethora of domestic and multinational companies engaged in banking and finance, pharmaceuticals, shipping and importing, information technology, healthcare, and media, to name a few.
Apart from income demand, Mumbai’s working population is estimated to increase from five million in 2019, with 20 million registered migrants annually, to nine million by 2030, thereby significantly increasing demand in the commercial real estate sector, which has the third-highest international passenger traffic in the world.
Most of India’s commercial real estate stock is situated in Mumbai, home to master-planned central business districts and special economic zones that cater to different sectors.
Most market development has occurred in 1920s Mumbai, while smaller infill developments have taken place in the suburbs and towns of the 1960s and 1970s, such as Bandra-Kurla Complex, Lower Parel, Andheri, and Goregaon, with new business districts more recently emerging in mill districts such as Parel and Elphinstone, and the erstwhile textile towns of Thane, along with integrated townships featuring IT parks and SEZs in Navi Mumbai.
The primary stakeholders in the Indian commercial property market typically include three different entities: developers, institutional investors, and quasi-governmental institutions. The construction and selling prices of real estate in Mumbai have increased by 16.17% and 15.23% annually from 2015 to 2019, respectively. Other transaction costs include cess and surcharges, stamp duties, and local body taxes. The accelerated price appreciation has made current and new investors, including some marginal developers, more willing to offer purchased and leased properties for outright or joint venture redevelopment.
2. Key Trends and Developments in the Mumbai Commercial Real Estate Market
Demand and supply dynamics in commercial real estate are being shaped by a range of fundamental trends and changes. The urbanization of rural spaces due to increasing participation of women in the formal economy, the increasing proportion of young people in the urban economy, and changes in consumer behavior patterns owing to advances in biotechnology and information technology are some of the many factors pushing the real estate industry.
Technological advancements have also given rise to changes in office space requirements. For instance, today, several firms are actively encouraging their employees to work from home.
This has started to have an impact on office space requirements. Those markets that are heavily dependent on a small number of large tenants who have adopted such work-from-home policies may find that their market is significantly affected.
Many cities are also undergoing an increased influence of international groups that are not familiar with inflexible leasing norms. A growing trend that is picking up is consequently the greater willingness by landlords to grant a corporate client the flexibility to utilize more or less space aside from their original commitment and, in other cases, to enable them to persuade the landlord to build out additional facilities.
Over the longer term, new concepts like strategic business unit offices, integrated office facilities, and other hybrid equipment and staffing concepts such as call centers, factories, and office systems, supplied complete with equipment and managed on a complete or partial turnkey let package system will also arise.
The needs of the changing office market hold significant implications for future investment strategies.
A major trend now underway is the globalization and consolidation of the commercial real estate industry. Many of the established players have focused their energies on other forms of investments, such as special opportunity funds.
The investors who have benefited from the greatest scope in the current market are largely the institutional equity market funds—those who are investing in the trends and need not worry about the cash flows and yield components on which landlords once focused. Many of these funds focus on the bigger cities, and they are not only successful in the midst of market downturns but also in the days of a low interest environment.
Therefore, in many cities and regions, the competition among such funds has driven the prices above the fundamentals. The value-added investor has taken a little bit of a back seat, except in situations where further supply is blocked by infrastructural congestion, decontrol, or poverty. It is the pieces of real estate whose value can be increased by direct actions that continue to offer the greatest discount to the investors.
3. Challenges and Opportunities for Investors in Mumbai’s Commercial Real Estate Sector
This section provides a detailed analysis of the challenges faced by investors in Mumbai’s commercial real estate market. Experts identified a number of difficulties in this regard, such as a complex and time-consuming approval process, regulatory hurdles, issues in exiting the market, and the absence of long-term financing.
The opportunity set is huge, but there are challenges for investors. Regulations, surveys, and approval processes are very complex and a significant time-related issue. There are also considerable cash transactions, while securing bank finance is difficult.
The licensing and permits for civil construction are hurdles as well, which dampen investments. Additionally, owing to the cumbersome regulatory environment, rights in the marketplace are minimal. Investors prefer to invest in completed projects as it relates to debt-equity structure and also in greenfield developments.
Due to implementation challenges, approvals are difficult. Facilities, roads, and water are in short supply, which makes occupancy a voluntary move rather than an enforced one. There is not enough growth in infrastructure. Market development only happens after it has been absorbed. Professional funds are not working, and there is no professional management of real estate.
Despite these challenges, Mumbai’s expanding economy, increasing population, and surging demand for logistics and e-commerce sectors create multiple opportunities for market players. A necessary aspect of market cycles is the degree of risk involved in the financial and real estate markets. Investments and investment strategies are driven by issues such as employment prospects.
This includes contrasts within a nation. While this is correct for investments, the need for such supervision is at the top of the nascent level for Mumbai real estate. In addition, real estate investors must accept the challenges of the capital market.
The resolution belongs to the capable and not the novice. Significantly, the demand for warehousing spaces and the logistics industry is booming and will continue to grow at pace. This is one sector that will only experience growth with its growth story. A slowdown effect is unlikely, primarily due to consumption growth. With easy online registrations and low existing infrastructure needs, warehousing has more scope to gain from evolving e-commerce.
4. Government Regulations and Policies Impacting the Commercial Real Estate Market in Mumbai
Rules, regulations, and policies of the government influence the commercial property market to a great extent. The state legislature in India has empowered municipalities and city corporations to control land use plans, industry location, and construction activities within their jurisdiction through town planning, boundary regulations, land acquisition, public infrastructure development, and other regulations, such as building codes, environmental protection policies, and special economic zones.
Municipalities in Mumbai determine land use and zoning as well as the allocation of funds for public facilities and services that might have a large and important impact on the commercial property market. Apart from controls, there are enabling policy mechanisms that encourage larger development, such as cheaper and faster approvals for IT parks and malls. However, the impact of these is much less comprehensive than the impact of the restrictive regulations.
There are a number of national-level laws and regulations that are of interest to investors and which govern the accessibility of the city’s commercial property market. Favorable tax regimes and foreign investment regulations are key variables in the investors’ decision-making process.
Environmental regulations, designated use of land by city authorities, and labor and employment regulations are also of primary concern to property developers. This section highlights the regulatory impact on market accessibility, investment decision-making, and mandated business strategies.
Compliance with policy is proving to be an overbearing task; as a result, a good majority of high-level business executives are opting to influence policy directly by making contributions to the heads of government, and some are even getting positively politically involved, replacing a previous approach of merely engaging bureaucrats who, in turn, influence the decision-making process.
5. Future Outlook and Predictions for the Mumbai Commercial Real Estate Sector
No one can predict the future with certainty. Yet, by examining developments in the commercial real estate market in Mumbai and combining this with an independent strength analysis, we were able to sketch a picture of what the future could look like. We found consistent backing for this bird’s eye view from other experts.
This section sets out our expectations for the market and finishes by illustrating the lessons for property investors and developers. Experts’ Expectations – By plotting this gradient on a graph and projecting that forward, we have a crude measure of how demand for commercial properties in Mumbai should develop.
Based on our expected macroeconomic and urbanization trends, we anticipate market conditions to loosen in the next nineteen months, a trend further compounded by the launch of the new supply pipeline.
Significance – Whichever view is ultimately correct, the Mumbai regional economy and property market are subject to a fast-evolving alphabet of global and local trends. We can anticipate waves – favorable trade winds plus swells of expansion and growth driven by economic diversification and urban expansion – but the boats will have to adapt and must be prepared for some rough weather.
The proptech potential – Innovation is leading to rapid change in the global market for commercial property, in terms of both transactions and, critically, asset management. We anticipate greater flattening in this value pipeline in the future, with more individuals able to buy assets and invest in property legally through the use of investment platforms.
Global economic conditions and the local response matter – Our approach suggests that waves of global and globalization skepticism – bad news for a medium-term, export-oriented market such as Mumbai – are scheduled to subside around 2022.
The market for rent (commercial property) can lag actual activity, sometimes by many years. A short correction later in the cycle between 2021-2023 seems more likely when wage demands and the aspirations of businesses align, making more optimal use of employees. It is in these years, as the preparation for a recovery is underway but before it has started, that prime commercial investments will command a premium.
