Cos moving offices to cheaper suburbs

MUMBAI: In 2000, companies in Mumbai started making the shift from south Mumbai to Lower Parel. Seven years later, corporates, especially mid-sized companies, are moving to more affordable locations like Goregaon in the western suburbs, Wadala in the central suburbs and Navi Mumbai.
Among the companies changing their office locations are advertising major Ogilvy & Mather, life insurance player Kotak Life and some portions of Tata Teleservices (Maharashtra) and Standard Chartered Bank's operations that are currently in central Mumbai.What's driving this change of address is the high rentals they are being asked to pay. "Most of these players are old tenants. When renewals come up, they are finding that rentals have gone up more than 200-250%, making it unaffordable for them," says Pranay Vakil, chairman of the real estate advisory firm Knight Frank.
Rentals in areas like Lower Parel have gone up from Rs 90 per sq ft five years ago to Rs 400 per sq ft today as Kotak Life Insurance discovered recently. Currently housed in the posh Peninsular Corporate Park and occupying 10,000 sq feet, it had originally signed on with the landlord at the rate of Rs 80/sq ft. When the company's lease came up for renewal though, the new price quoted was Rs 400/sq feet. It compelled the management to look for a new address in Wadala. They now have 27,000 sq feet at a more affordable rate.
Similarly, O&M has decided to shift its entire set-up to 90,000 sq ft in Kandivli from its current position at Lower Parel. The firm, which occupies three floors at its present location at Lower Parel, and another floor in an adjoining building for over 600 employees, was keen to lease out another two floors in the same building. But the builder refused permission. Says an official, "With staff strength growing rapidly, it was necessary to include more office space. We even decided to take up an entire new building in the periphery, but the builder refused an outright sale. He said he did not want one single company occupying the whole building." An analyst adds that the key consideration for picking Kandivli, apart from the rate, was the fact that 60% of O&M's employees lived in the suburbs beyond Bandra.
Suburbs like Goregaon are becoming popular because a rash of corporate office complexes have sprung up, courtesy builders like Oberoi Constructions and K Raheja. Standard Chartered Bank has bought commercial space of 1.50 lakh sq ft in Goregaon for about Rs 325 crore from K Raheja. The foreign bank intends to use the space for its consumer banking divisions back-office operations. They currently operate out of Lower Parel.
Vakil of Knight Frank says that unlike five years back, when a corporate looked at connectivity to a rail head while deciding office location, today proximity to road is becoming critical since a lot of people drive to work. Often companies look at changing locations for the back end or other related functions. Tata Teleservices chose Turbhe to relocate its network management functions in order to cut down costs. However, its corporate offices continue operations in Worli.
Will this mean that areas like Wadala and Kandivli that are essentially residential will be transformed into corporate hubs? Probably not, say brokers. Until now, prices in these there for both commercial and residential spaces have not seen too much of upward momentum. That, brokers add, is because in any case, prices in these areas are quite high.