UPDATE: Citigroup Buys Mumbai Office Space To House Key Businesses

Citigroup Inc.'s (C) Indian unit said Wednesday it has acquired 297,000 square feet of office space in a suburban business district in Mumbai to house its key businesses in India that are currently spread across several cities.

Citi has bought six floors or nearly half the space in a building, First International Finance Centre, in the Bandra Kurla Complex, a spokesman for the Indian unit said in a statement.

The spokesman didn't specify the price the bank paid.

A person familiar with the matter said the deal was worth INR9.85 billion ($187.23 million), making it one of the biggest commercial property deals in Mumbai.

It bought the property from a consortium that included U.S.-based Starwood Group and a fund sponsored by India's Purnendu Chatterjee group and Vornado Realty Trust, the person said.

This is the bank's second major property in the area--the other being Citigroup Centre.

Analysts said the deal is in line with existing market prices in the area that houses the head offices of major Indian and foreign banks such as ICICI Bank Ltd., UBS AG and BNP Paribas S.A. Several other large companies also have offices in the Bandra Kurla Complex.

The deal reflects a growing trend where companies are consolidating their operations in large suburban business districts from multiple downtown presence, say analysts.

Such large transactions provide the companies better negotiating power with property developers, they said.

However, the Citi deal doesn't mean the commercial real-estate space in India is heating up, said Ashutosh Limaye, head of research at the Real Estate Intelligence Service division of Jones Lang Lasalle India.

On the contrary, buyers are "more cautious given the uncertainty in global growth environment," said Limaye.

He expects deals in office space--lease rentals or outright sale-- in India to decline this year from 2011.

This is more so as 62% of India's office space is occupied by companies from the U.S. and Europe, economies that are still battling with sluggish growth and weak economic prospects.

The slowing economic growth in Asia's third-largest major economy may also hurt domestic demand, say experts.

The lower "absorption of space" during 2012-13 compared with the previous two years could consequently bring rents under pressure, real-estate research firm KnightFrank said in a recent report.

The Citi deal comes at a time when the U.S. banking group is looking for growth across all businesses after the 2008-2009 credit crisis that hurt profitability and spiked bad loans.

-By Nupur Acharya; Dow Jones Newswires; +91-22-61456117; nupur.acharya@dowjones.com