The setting is most unlikely. Past the slums, garbage dumps, creeks and filth that dot the landscape in the western suburbs of Mumbai, is 125 acres of land that is changing the face of commercial property in the city.
In the five years since it was started, Mindspace, the brainchild of construction company K Raheja Corp, has put two nondescript city suburbs -- Goregaon and Malad -- on the map.
The global standard hi-technology park with planned infrastructure and landscaping will contribute more than 1 million sq ft of office space for the information technology enabled services and back office operations industries by the year-end.
With an investment of more than Rs 300 crore (Rs 3 billion), Mindspace will effectively become one of the largest commercial hubs in the city. And by the end of 2003, Mumbai-based real estate advisory firm Jones Lang LaSalle estimates that Mindspace alone will have a 12 per cent market share in the total space created for and demanded by the IT, ITES and back office operations in the country.
"There was huge land just sitting waiting to be developed. Considering the size of the land we were able to execute a plan to develop a mini-city," says Vinod Rohira, director-sales & marketing, K Raheja Corp.
That's not all. By December, the first phase of a 500,000 sq ft mall will be completed. Starting with 350,000 sq ft of space -- Inorbit -- will house a shopping plaza (with the RPG group hypermarket Giant, the K Raheja promoted department store Shoppers' Stop and Chennai-based Lifestyle), a seven-screen multiplex (run by Shringar Films), entertainment centre, food court and parking.
Apart from this, 30 per cent of the project is allocated for residential flats. The mall will service the occupants of Mindspace and also the surrounding areas.
"The catchment may not be affluent but it is a rich area because the business will be mass volume driven," says Pranay Sinha, associate director - retail & leisure advisory, investor services, Jones Lang LaSalle.
Ten years ago, the idea of developing a commercial hub in the suburbs would have been laughable. "The residential spaces in the suburbs grew faster because returns on investment for builders were higher in the suburbs. While commercial space gave higher returns in the main city since demand was high," says Anuj Puri, managing director of realty firm Chesterton Meghraj.
Today companies like Morgan Stanley with 120,000 sq ft of space, J P Morgan Chase (90,000 sq ft), Daksh (85,000 sq ft), Otis (45,000 sq ft), Apar Technologies (80,000 sq ft) are occupants in Mindspace.
"We chose Mindspace for the facilities that they were ready to offer, its proximity to the local stations, the reasonable rentals and because it was approachable," says a senior administration executive at E-funds, a call centre which occupies more than 80,000 sq ft.
With the metropolis bursting at its seams, the charge has been toward the suburbs. Rental rates in south Mumbai's central business district, Nariman Point, continue to be unaffordable and the lack of space in the area compounds the problem.
Compared to that, emerging alternate business districts like Bandra-Kurla Complex, the Andheri-Kurla-Powai and now Goregaon-Malad belt offer better rentals and larger spaces.
Today, Mindspace along with the Andheri-Kurla belt and Hiranandani-Powai, the other two private sector developments, accounts for more than 70 per cent of the commercial space requirement demanded by the IT, ITES industries in Mumbai.
What has also compounded matters is that newer companies have opted for cheaper and larger options in other cities. "Mumbai was losing out because the development of space was inadequate, expensive and low on infrastructure. Companies looking for space went to other cities which did not pose these problems," says Rohira.
In the last 7-8 years, cities like Hyderabad, Bangalore, Chennai and even Delhi, have emerged as viable commercial spaces for the IT and ITES industry.
Compared to that, there was hardly any activity in Mumbai in terms of commercial real estate development. Now with the developments of Mindspace and Hiranandani-Powai, the scenario has changed. Hiranandani - Powai, for instance houses 85 companies including IT major Wipro, its call centre Spectramind, the e-learning outfit Mentorix and Colgate Palmolive among others.
Also today, in properties like Mindspace and Hiranandani-Powai, rentals are almost at par with real estate prices in Bangalore, Delhi, Hyderabad and Chennai. "We are no longer competing with just similar properties in the city but also other cities in the country.
The pricing and offering has to be competitive," says Rohira. So while commercial space rentals hovered around Rs 45 per sq ft per month in Powai in 1999, today prices are down to the Rs 33- Rs 38 per sq ft per month range. And when companies demand larger spaces, deals are signed at rentals as low as Rs 28 per sq ft per month, according to analysts.
"Mumbai's real estate business has been de-risked to a large extent as builders follow time schedules and build as per demand. Speculative construction has come down drastically removing the earlier demand supply inequation," says V Hari Krishna, associate director - corporate finance, capital markets, Jones Lang LaSalle.
Real estate analysts point out that from a 24-36 month construction cycle, today key developers in Mumbai follow Bangalore's business model of completing construction in 7-10 months, bringing costs down.
In fact, Mindspace prices have risen marginally from Rs 28 per sq ft per month in 2000 (a year after the project took off) to roughly the same levels as in Powai. Being on the city's western corridor, real estate analysts say Mindspace has commanded a premium of 5-10 per cent per sq ft.
"Earlier there was no commercial property in that area, so there was no benchmark. Mindspace started low and therefore appreciated to what the market rate is currently," says a senior executive at Knight Frank India Research, a Mumbai-based real estate agency.
Then there is the efficiency with which the space is used. While the government developed alternate business district -- Bandra Kurla Complex has efficiency rates of 65 per cent (essentially meaning that for 100 sq ft of land 65 per cent of the land is efficiently used) as compared to 85 per cent efficiency rates maintained in Mindspace.
The reason is haphazard planning in Bandra Kurla. "Bandra Kurla houses corporates and banks that have bought space on a pro-rata basis from the government. But there is no common infrastructure that has been developed to support the offices there," says Hari Krishna.
Real estate analysts say that in the long run, private developments like Hiranandani-Powai and Mindspace ensure that the developers are in control of the tenants and that ensures higher maintenance standards.
As a result of Mindspace's success, K Raheja is also planning another property in Hyderabad. But the district could face competition from other properties that are at the planning stage.
Adjacent to Mindspace are two separate plots of almost the same size owned by the Suresh Raheja and G L Raheja groups. Though the plans are still on the drawing board, analysts expect that there will be commercial space in both properties.
Then, Oberoi Developers' Vikas Oberoi is planning a mini-city on similar lines on the other side of the western corridor close to Goregaon East.
At the end of it all, Rohira and the analysts are hoping that the breakneck development will force the government to spruce up the city's infrastructure, which still puts off foreign companies.
The other risk for Mindspace is its dependence on the IT, ITES and back office business. The property has not been able to attract other companies.
Also, some tenants say that the proximity to the sea is corroding electrical and electronic equipment. But these are minor roadblocks. "If we get our act together as far as the approach and infrastructure is concerned, the sky will be the limit," says Rohira.
