Developers usually offer a free ‘fit-out’ period of two months for tenants to complete furnishing their office space. But poor demand is forcing developers of new projects to waive the rent for a period of five months or even more
Squeezed by oversupply and muted demand, developers are trying out a novel strategy to attract tenants to their newly launched commercial properties in Mumbai. Instead of lowering the rentals, which is the usual strategy to cope with poor demand, developers are instead offering a rent-free 'fit-out' period of at least five months (more, in some cases) for tenants who are willing to sign a lease agreement for at least nine years.
Developers usually offer a free fit-out period of two months for tenants to complete furnishing their office space. But now, even tenants who complete furnishing their premises in two months are able to bargain for a much longer fit-out period.
According to analysts, the commercial real-estate segment has started showing signs of recovery from the March 2010 quarter, but developers are still finding it difficult to get occupants for new projects. This has forced developers of at least seven office projects in Mumbai to increase the fit-out period. These projects are: Western Edge (from Kanakia Space), Supreme Chambers (from Supreme Universal), Ackruti Gold (Ackruti City Ltd), Pinnacle Corporate Park (Pooja Constructions), Grand Palladium, Cresenzo (Parinee Developers) and One Indiabulls Centre (Indiabulls Real Estate).
"These kinds of discounts might help them to attract tenants," said Raja Kaushal, executive director and chief operating officer of BNP Paribas Real Estate (India).
The developers of these properties could not be contacted for their comments.
Around 160 million sq ft of commercial space is expected to hit the market over the next two years while the demand is estimated to be for around 122 million sq ft. As a result, developers are trying hard to clear their inventories before the oversupply scenario worsens and they are forced to lower their rentals to attract tenants.
"Rentals in the commercial segment won't rise for at least a year as there is a huge amount of over-supply," said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd. So, all indications are that tenants will continue to dictate terms for some time to come.