Can South Mumbai commercial real estate market catch up with BKC with infra boost?

South Mumbai, once known as a bustling real estate hub in India, may be gearing up for a potential revival as connectivity to the area gets a boost with a new road and metro service.

Over the years, the area lost its prominence as businesses moved out to other parts of Mumbai. But now, with projects such as the Mumbai Coastal Road and the Mumbai Metro-3, hopes are high for a resurgence. However, experts said a complete revival may still be far away.

These projects aim to improve connectivity and reduce travel time, making South Mumbai more accessible to businesses and residents. The partial opening of the 10.58 km Mumbai Coastal Road between Marine Drive and the Bandra-Worli Sea Link, and the upcoming launch of the Metro-3 line between Seepz and Colaba are expected to play a significant role in this transformation.

According to experts, while South Mumbai's commercial real estate market may see increased demand, it might not reach the same level as Bandra Kurla Complex (BKC), India's costliest commercial district, in the short term.

Uday Kotak, founder and director of Kotak Mahindra Bank, reacting to a post on X that said commercial office building space was going at Rs 16,000 per square foot in New York, noted that it was less than half the rate at Mumbai’s BKC.

In South Mumbai, there are challenges such as the limited floor space index (FSI) for redevelopment, which could slow down revival prospects. FSI determines how much construction is allowed on a plot of land.

Office leasing in Sobo vs BKC

Commercial office leasing in Mumbai was about 10 million sq. ft in 2023. The South Mumbai commercial real estate market's share of this was 5 to 10 percent.

Office rentals in South Mumbai have fallen to Rs 200 to Rs 240 per sq. ft from Rs 255 per sq. ft owing to lack of quality space. Comparatively, rates in BKC have gone up in the past five years, according to real estate brokers.

In BKC, office rentals were Rs 125 to 350 per sq. ft in 2020. The rentals there currently range from Rs 250 per sq. ft to as much as Rs 500 per sq. ft in some Grade-A properties.

While there has been no new supply of Grade-A office space in both BKC and South Mumbai's Nariman Point - once the central business district (CBD) - in the past two years, rentals in BKC are higher because of convenience and quality options available in the vicinity, according to experts.

Experts optimistic

“There is not enough Grade-A office space in South Mumbai for MNCs wanting to set up offices or go back to the erstwhile CBD," said Jerry Kingsley - head, strategic consulting and valuation advisory at JLL India, a real estate consultancy firm. "In Grade-B and Grade-C office space, there is some traction from domestic smaller companies as rentals have now become affordable due to a large shift of offices from South Mumbai to Bandra Kurla Complex, Lower Parel, and other office locations of Mumbai."

Commercial offices in South Mumbai are very old, have smaller floor plates, lack amenities, have limited parking facilities, and do not possess vibrant food and beverage options. These factors deter large MNCs from considering South Mumbai as an office destination, Kingsley added.

He said that for South Mumbai to compete with BKC and Lower Parel, a massive transformation will be required in the quality of assets, after which some additional inventory in Grade-A space can be expected for large MNC tenants to consider moving there.

While the commercial office market of South Mumbai is unlikely to boom overnight, the operationalisation of the Coastal Road and Mumbai Metro-3 will improve connectivity and, if the right chords are struck, some charm may return to the erstwhile central business district, Kingsley added.

According to Savills India, another real estate consultancy firm, there will be a limited direct impact on real estate pricing because of the infrastructure initiatives.

"Businesses may consider having a small office in this micro-market (South Mumbai), along with an additional one in other business districts," Savills added.

"South and Central Mumbai will see a gross development of more than Rs 1 lakh crore within a 1 km radius of the Coastal Road's various entry and exit points. The Coastal Road will prove to be the revival of South Mumbai real estate,” said Harshul Savla, managing partner of M Realty, which has two upcoming projects in South Mumbai around the Coastal Road.

Challenges for Sobo

According to experts, South Mumbai will require redevelopment of old commercial and residential property to add inventory of Grade-A office space.

"Residential and retail will pick up if more Grade-A commercial office spaces come up," a real estate consultant said. "Currently, there are a lot of old buildings to be redeveloped in South Mumbai, but the FSI in South Mumbai does not make it lucrative enough for large-scale redevelopment of old buildings there."