Oracle's lofty Bandra office deal could lift grim realty

In one of the most expensive office deals in India in the past two years, US-based software services firm Oracle has leased 50,000 square feet space in an office complex in the Bandra Kurla Complex, Mumbai’s secondary business district, at Rs 340 a sq ft a month.

The office complex, where Oracle will be housed is the First International Financial Centre, developed by a consortium of US-based investors including Starwood Capital Group, India Property Fund (sponsored by The Chatterjee Group and Vornado Realty Trust), and Urban Infrastructure Real Estate Fund.

Though the yearly rent works out to Rs 20 crore (Rs 200 million), the sq ft rate is on the higher side, according to consultants.

In April 2012, US-based Citigroup bought 297,000 sq ft in the same building for Rs 985 crore (Rs 9.85 billion, which translates to Rs 33,164 a sq ft. Since the rents are 10 per cent of the outright buy-out, it works out to be Rs 276 a sq ft.

Office rentals are Rs 275-Rs 290 a sq ft in BKC.

“It is one of the expensive deals and they have paid 15 to 20 per cent more than the average rent in that area,” said Raja Seetharaman, managing director at Aperon Realty, a global realty services firm.

“Of late, not many office deals have happened in BKC, as tenants were not willing to pay high rents,” said Seetharaman.

Oracle signed a nine-year lease deal with FIFC for an entire floor in the 14-storey building.

“It is more than the market price. I think since the developers are from the US, the tenants would have had more faith in them,” said a senior executive from a realty firm in Bandra Kurla Complex.

“We show the project to many people. Oracle liked the product,” said a senior executive at FIFC.

A senior executive from another global consultancy said the deal could involve benefits such as no-escalation, rent-free periods, etc, so that the effective rents could be lower for the tenant.

US-based consultant Jones Lang LaSalle advised Oracle on the deal, while another global consultant, CB Richard Ellis, advised FIFC.

The deal assumes significance as the absorption of office spaces is declining.

According to realty consultant Cushman & Wakefield, the net absorption of office spaces has come down by 38 per cent at 3.6 million square feet in the top-eight cities, including Mumbai in the first quarter of 2013.

However, fresh supply registered an increase of 18 per cent on an yearly basis and was recorded at 7.9 million sq ft. Vacancy rates at the end of the first quarter of 2013 were at 19.6 per cent, representing a rise of three per cent from the same quarter last year.