The second COVID-19 wave has taken a substantial humanitarian toll over the past couple of months. This unfortunate turn of events has followed a fairly successful handling of the first wave and rapid economic recovery towards the end of last year. Both the government as well as private agencies have been forecasting 9-10% growth for the current year. Manufacturing and construction activity have been normalizing with large companies and developers moving ahead with pending projects. Contact-intensive service sector industries – finance, real estate, professional services, for instance – had started witnessing green shoots of recovery in early 2021. The second COVID-19 wave has, however, not just stalled the economic momentum but highlighted the need to ramp up critical medical infrastructure to face the evolving health emergency.
‘Maximum City’ leads the way in COVID-19 management
Even amidst the current unfortunate turn of events and increasing toll of human lives, one city stands out for its inherent resilience and strength. Mumbai, the financial capital of the nation and a city with one of the highest population densities, has time and again shown its ability to bounce back from serious setbacks. It’s no different this time as well. Since the proliferation of COVID-19 cases in March and a subsequent surge in April, the proactive state government has implemented a strict lockdown to curb transmission rates. Municipal authorities in the city moved fast, ramping up health infrastructure, enhancing hospital beds and oxygen capacity and using technology extensively to monitor the situation. This meant that the city never faced shortage of oxygen and beds as has been witnessed in other large cities.
Moreover, large COVID-19 care centres/field hospitals, also known as ‘Jumbo’ COVID-19 centres, set up during the first wave with state-of-the-art medical facilities, went a long way in delivering critical health services to common citizens. City authorities are already preparing for a possible third wave with plans for three new field hospitals. Mumbai’s success in handling the second wave has earned wholesome praise from various quarters, including the apex judiciary. With the current sharp decline in cases and positivity rates, the ‘Maximum City’s’ real estate sector and broader economy stands on the cusp of a rapid recovery and robust growth over the next few quarters.
Real estate sector poised for a strong recovery
Mumbai’s real estate sector is one of the strongest in the country across asset classes and will continue to be so despite a temporary COVID-19-induced disruption. Throughout the second wave, the compassionate side of city-based developers and businesses has come to the fore. Adequate arrangements for accommodation, food, PPEs, have been made available at project sites for construction workers. Several developers have already started vaccination campaigns for their site-based workforce. Clearly, the focus is on seamless project implementation and delivery once the second wave abates.
Mumbai’s status as a prime commercial office market is further demonstrated by leasing activity in recent quarters. For instance, in Q1 2021, Mumbai accounted for nearly a quarter of pan-India leasing, the highest across the top 7 cities, and clocked a 34% growth on a quarterly basis. The city continues to attract the largest global banks, insurance and IT/ITES firms because of its highly skilled, varied talent pool and is home to around 11% of global capability centres (GCCs). Even in a pandemic year, large office lease deals have been closed with marquee tenants such as Blackrock, Maersk and Citius with pre-commitments by Morgan Stanley and JP Morgan Chase remaining firmly in place. The city continues to attract a large chunk of pan-India private equity investments given the robust fundamentals and the strength of its commercial real estate. Out of the three listed office REITs, two are headquartered in Mumbai (Mindspace Business Parks, Brookfield) with rental collections of around 99% despite the pandemic. Going forward, Tesla’s planned entry into Mumbai with an office at the Lower Parel-Worli business district will be another feather in the city’s already decorated cap.
Mumbai’s housing market continues to perform exceedingly well helped by government incentives and healthy consumer demand. Over the past couple of quarters, property registrations and sales have increased sharply helped by the government’s stamp duty cuts. The recent Budget extended the stamp duty reduction to female homebuyers, an innovative initiative which will boost home sales and enhance gender equity in home ownership. With construction activity expected to normalize gradually from Q3, residential launches are likely to pick momentum with developers continuing to attract home buyers with various incentives. Over the long term, the recently announced Model Tenancy Act could support a gradual expansion of multifamily housing in the city if focused incentives can be provided by the state government to attract large developers such as Oberoi Realty and Godrej Properties.
The Indian retail sector has probably been the hardest hit by the COVID-19-19 pandemic and the subsequent lockdowns and mall closures. However, Mumbai’s retail market has held up well. Citroen has inaugurated its first showroom in the city while Sketchers, Under Armour and Decathlon have leased spaces in prominent malls. Prime main streets such as Colaba and Linking Road continue to be in demand with the slight drop in rentals over the past year likely to make these locations even more attractive for retailers. Receding infection rates and faster vaccinations will facilitate quicker recovery for main streets over the next few quarters. Superior malls, on the other hand, continue to report low-single digit vacancies with demand for quality mall space largely intact. As malls open up, footfalls will rise gradually by the end of 2021 / early 2022 with developers/landlords continuing to support retailers through the current period of business uncertainty.
The pandemic outbreak and the subsequent growth in digital transactions and e-commerce have brought warehousing & logistics and data centres into sharp focus. Mumbai is poised for robust growth in both these emerging, high growth asset classes. Bhiwandi and Navi Mumbai are already well-established industrial locations with a healthy portfolio of Grade A warehouses catering to rising demand from e-commerce and 3PL players. With the sector attracting long term institutional capital, the supply of investment grade warehouses will continue to increase over the medium term. Mumbai is also the leading data centre hub and accounts for nearly 45% of existing capacity in the country. Well-developed fibre connectivity, international cable landing station and government incentives will continue to facilitate growth. Going forward, large global operators (ST Telemedia, NTT, Colt, Bridge Data Centres) are likely to invest heavily in this space with the city adding over 30% of pan-India capacity in the next 5 years.
Key infrastructure projects will augment Mumbai’s business credentials
Since the outbreak of the pandemic, ongoing mega infrastructure projects have never been halted completely. Going forward, this augurs well for the city’s key infrastructure projects, which are likely to be completed in the next 2-3 years despite possible short-term construction delays. Prominent among these are the Mumbai Trans-Harbour Link (MTHL), Coastal Road project and additional phases of the Mumbai metro. For instance, the Mumbai Metro Rail Corporation has been moving ahead with construction work on the Metro Line 3 project connecting Colaba, Bandra and SEEPZ with limited workforce amidst strict COVID-19-19 protocols. Moreover, trial runs for Metro Line 7 and Metro Line 2A have commenced following successful overhead electrification. Phased completion of these projects will go a long way in enhancing connectivity and augmenting Mumbai’s attractiveness as a business destination.
Over the medium to long term, the city’s real estate sector will also benefit immensely from the timely implementation of the new Development Control and Promotion Regulations 2034. Higher permissible FSI for commercial/office use, additional FSI for smart fintech and biotech centres, mandatory contribution from redevelopment of larger plots for public purpose land are some of the initiatives laid out to enable infrastructure creation and drive equitable economic growth.
In summary, Mumbai will continue to remain the economic nerve centre of India despite the near-term disruption. The outlook remains bright, supported by proactive government policies, business dynamism and the general resilience of the city’s residents. Mumbai has passed the COVID-19 test and is ready for the future, and the future looks brighter than ever before.
This article originally appeared in livemint.com on June 08, 2021.