Two years ago when businesses were neck-deep in recession,builders in Mumbai shelved their plans for commercial complexes and launched residential projects instead. Mumbais realty market is once again treading down the same path. Only this time,the change in plans is not propelled by a demand slowdown,but due to an oversupply of commercial realty. Of the total 65 million sq ft of commercial office space available in Mumbai,the vacancy rate currently stands at a steep 22 per cent,according to figures available with international property consultants Jones Lang LaSalle (JLL). This is a massive leap from the vacancy rate of 2 per cent back in 2007. There was spurt in demand for office space and the state government also offered double the usual FSI for IT parks. For the next two years,everyone jumped onto the commercial realty bandwagon, said Ramesh Nair,managing director,JLL (West India). He added that the rush slowed down in 2009 when due to the global financial meltdown companies rolled back their expansion plans. Now,the demand for commercial realty has once again gone up while registration data for residential projects shows a 30 per cent drop. But the oversupply of office space has made it difficult for developers to generate steady cash flows from their commercial projects, said Nair. Despite the slackened residential market,all the major land transactions this year are slated to see residential developments. Real estate sources point out that the 14-acre Golden Tobacco Company (GTC) property in Vile Parle and the 18-acre Borosil Glass Works land at Marol,both bought by Sheth Developers,and the 100-acre Bayer land at Thane that was purchased by Kalpataru group are all set to house residential projects. With commercial projects,there is no cash flow coming in until the building is completed. Even the enquiries start trickling in towards the last six months before completion, said Kaustuv Roy,executive director at Cushman & Wakefield. He added that it gets difficult to sustain commercial projects at a time like now when money supply is especially tight. Roy pointed out that in the case of residential projects,developers manage to generate working capital for their project through pre-sales to investors. For instance in 2009-10,Orbit Corporation having failed to pre-sell any space at its proposed office project Hafeez Contractor House in Lower Parel decided to use the land to construct a residential project Orbit terraces.
