dtz property times india q3 2011

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Property TimesIndia offices Q3 2011

Cautiously optimistic markets

13 October 2011

Contents Executive summary 1 Economic overview 2 India real estate overview 3 Seven cities’ snap shot I 4 Seven cities’ snap shot II 5 Delhi NCR 6 Mumbai 8 Bengaluru 10 Chennai 12 Pune 14 Kolkata 16 Hyderabad 18 Micro markets rentals 20 Micro markets outlook 21 Definitions 22 Contacts 23

Author Rohit Kumar Head of India Research +91 (0)124 459 7500 [email protected] Rejish T.C. Manager, Research +91 (0)80 4123 1600 [email protected] Divya Badola Manager, Research +91 (0)124 459 7500 [email protected] Satish Tiwari Manager, Research +91 (0) 22 4223 1600 [email protected] Contacts David Green-Morgan Head of Asia Pacific Research +61 (0)2 8243 9913 [email protected] Tony McGough Global Head of Forecasting & Strategy Research +44 (0)20 3296 2314 [email protected] Hans Vrensen Global Head of Research +44 (0)20 3296 2159 [email protected]

• Office data from Q3 2011 indicated that the momentum seen in deal closures in the preceding quarter was lost and overall market activity remained subdued during the period.

• The cumulative take-up across India’s seven largest cities dropped 33% quarter-on-quarter (Q-o-Q), to the lowest level in the past year, as a number of occupiers remained cautious and reevaluated expansion plans.

• The cumulative vacancy rose marginally to 23.6% due to the slown down in deal closures, in spite of the sharp decline in new supply in the market.

• During the quarter, the new supply declined by 50% Q-o-Q, as the tight monetory policy measures pushed up the cost of funds over the course of the year. This was compunded by the declining funding options available to developers.

• The market uncertainty also impacted the rental expectations across all micro markets and average achievable rents remained unchanged.

• Even though the overall market sentiment remained muted across India’s seven largest cities in Q3 2011, due to the global uncertainties and the likely slow down in domestic growth, India’s long term growth prospects remain robust. Hence, markets are likely to rebound once clarity emerges on the likely direction of the global economy in 2012.

Figure 1 India office take-up and availability ratio

0%

5%

10%

15%

20%

25%

30%

0

3

6

9

12

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011

sq ft (millions)

Take-up Availability (%)

Source: DTZ Research

Economic overview

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• Gross Domestic Product (GDP) in India expanded 7.7% in the 2nd quarter of 2011 compared to the same quarter of 2010. This is India’s weakest growth in the last six quarters (Figure 2).

• The S&P downgrade of the US economy and the prevailing tense debt situation in Europe might not affect the Indian economy because it is primarily driven by domestic consumption. However, the IT and ITES sector might feel the pinch in the coming months.

• The Wholesale Price Index (WPI) headline inflation is within touching distance of 10% (9.78% in August 2011) - the highest among major economies of the world. Petrol prices were up by INR 3.14 adding to the inflationary pressures.

• The Reserve Bank of India’s (RBI’s) anti-inflationary stance has seen interest rates go up a dozen times in the past 18 months. The repo rate (the rate at which the RBI lends) now stands at 8.25% and the reverse rate (rate at which the RBI borrows) now stands at 7.25% (Figure 3).

• The government launched a new Index of Industrial Production (IIP) in April 2011, with the aim of offering a better gauge of the country's industrial activity. The data was the first of a new series with a new base year, new components and weightings. The old series used the base year of 1993-94, which now stands revised to 2004-05.

• India's industrial production (IIP) growth fell to a 21 month low of 3.3% in July this year (Figure 4). This low growth figure is primarily driven by capital goods.

Figure 2

Gross Domestic Product (GDP)

Source: MOSPI, Govt. Of India, RBI

Figure 3

Interest Rates

Source: www.rbi.org.in

Figure 4

Index of Industrial Production


India real estate overview

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• The deployment of Gross Bank Credit to the real estate sector saw a minor improvement in Q3 2011 -

• from 4.4% of the total Non-Food Credit given by Commercial Banks in March 2011 to 4.4% in July 2011 (Figure 5).

• Since the beginning of the current financial year, the BSE Realty Index has eroded 21% in the past 6 months – the sharpest fall being in August 2011 (Figure 6).

• Cabinet has approved the Draft Land Acquisition and Rehabilitation & Resettlement Bill 2011 in September 2011 in the Monsoon Session of the Parliment. It is likely to be enacted in the Winter Session later this year. Key highlights of the Bill are the higher compensation and clearer definition of public purpose for acquiring land.

• FDI into the Indian real estate sector has been at an all time low the past 4 years reflecting lower investor confidence in the sector. Prime reasons are politicizing the land acquisition issues and uncontrolled price rise of building materials amongst others.

Figure 5

Share of Gross Bank Credit to Real Estate


Figure 6

BSE Realty Index

Source: www.bseindia.com

Seven cities’ snap shot

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• Delhi and Pune witness

strong new supply but at the same time both cities see increased vacancies between Q3’10 and Q3’11 (Figure 7).

• Mumbai, on the other hand,

has shrunk its new supply and at the same time, has increased its vacancy signifying decreased take up during the same time.

• Delhi, Mumbai and Pune increase their stock from a healthy base (Figure 8).

• Bengaluru has seen moderate growth in its stock since last year.

• For all cities, the quarter-on-quarter growth (between Q2’11 and Q3’11) has been miniscule

Figure 7

Vacancy and New Supply

-

5

10

15

20

1 2 3 4 5 6 7 8 9 10 11

Mumbai Q3’10

Mumbai Q3’11Delhi NCR Q3’11

Pune Q3’11Chennai Q3’11

Pune Q3’10

Chennai Q3’10

Delhi NCR Q3’10

Bengaluru Q3’11

Bengaluru Q3’10

Hyderabad Q3’11

Hyderabad Q3’10

Kolkata Q3’11

KolkataQ3’10

New Supply (mn sq ft)

Vaca

ncy (

mn

sq ft

)

Size of the Bubble represents StockQ3’10 Q3’11


Figure 8

Stock Q3’ 11

Delhi17%

Mumbai22%

Kolkata5%

Pune12%

Hyderabad7%

Chennai13%

Bengaluru24%

Base: 366 mn sq ft

Red Text: Q-O-Q change Blue Text: Y-O-Y change

3%16%

3%14%

0%18%

2%16%

0%10%

2%8%

2%5%


Seven cities’ snap shot II

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• Miniscule absorption happening in CBDs of all 7 towns primarily because of low supply (Figure 9).

Figure 9

Vacancy and New Supply

Base: 1.02 mn sq ft

Base: 1.03 mn sq ft

Base: 2.4 mn sq ftBase: 0.6 mn sq ft

Base: 0.56 mn sq ft

Base: 0.42 mn sq ft

711

73

9

34

93

129

1323

33

18

26

57

413

52

31

1

99

PBD NOIDA

PBD Gurgaon

SBDCBD

Delhi NCR14%

Mumbai14%

Bengaluru32%

Chennai8%

Pune6%

Kolkata18%

Hyderabad8%

CBDOff CBDNew CBDSuburban

PBD

CBDSBD

PBD

CBD

SBD

PBD

PBD

SBD

Off CBDCBD

PBD

CBD

100


Delhi NCR

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• Amidst uncertain global economic conditions and unfavourable domestic conditions, Delhi NCR witnessed substantially lower take-up in Q3 2011. The overall take-up stood at 1.02 million sq ft which was 48% less than the previous quarter and 25% less than the same quarter last year (Figure 10). Nearly 60% of the total take-up was reported in Gurgaon. The traditional IT/ITES continued to dominate the market in Q3 2011, contributing to more than 50% of the demand. The rest of the demand came from sectors such as Retail, Manufacturing and Consumer Goods.

• Overall vacancy stood at 31.8% of the total stock in Q3 2011 which was marginally higher than Q2 2011 (Figure 10). The take-up and new supply were able to offset each other resulting in a minor rise of 1% in vacancy q-o-q. Vacancy levels declined across all key micro markets except Noida where it increased by 4% q-o-q. Noida witnessed the lowest take-up in Q3 2011 compared to any of the quarters in 2010 and, Q1 and Q2 in 2011. Although the CBD witnessed the highest take-up compared to any of the quarters in 2010 and Q1 and Q2 2011, most of the activity was a result of internal movement and not fresh take-up.

• Due to the liquidity crunch as a result of increasing interest rates and cost of construction, new supply in Q3 2011 reduced by 19% q-o-q. Approximately 1.6 million sq ft of new supply came to the market in Q3 2011, taking the stock to 62.6 million sq ft (Figure 11). The delivery timeline of many new projects got pushed back by a few quarters.

• Overall rents remained stable across all micro markets in the region (Figure 12). With moderate demand and supply, the rents in the SBD and PBD along with the CBD are expected to stay stable in the next couple of quarters.

• The Land Acquisition and Rehabilitation and Resettlement Bill 2011 was introduced in the Lok Sabha on September 7, 2011 and is expected to be passed in the winter session of the Parliament. The compensation component of the Bill is going to affect the real estate prices as the developers will have to shell out more money to acquire land from the farmers now. The momentum in Delhi NCR both in commercial and residential real estate is expected to slow down for a couple of quarters as a result of the current economic conditions both globally and in the country.

Figure 10

Office take-up & availability ratio


Figure 11

Office new supply


Figure 12

Prime office rents


Delhi NCR

www.dtz.com 7

* Noida is inclusive of Greater Noida. Exchange rate: USD 1=INR 45.7

Table 1

Occupier market

Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011

Q/Q change

(%)

Y/Y change

(%) Directional

outlook TOTAL Stock (sq ft) 53,984,476 56,774,542 58,914,131 60,923,131 62,557,434 2 16 Take-up (sq ft) 1,356,673 1,850,233 1,220,352 1,963,519 1,015,778 -48 -25 Availability (%) 31.61 32.61 33.82 31.59 31.89 New Supply (sq ft) 740,000 2,790,066 2,139,589 2,009,000 1,634,303 -19 121 CBD Take-up (sq ft) 5,500 19,300 3,515 21,350 67,434 216 1126 Availability (sq ft) 73,400 57,301 53,786 32,436 0 - - Availability ratio (%) 5 4 4 2 0 New supply (sq ft) 0 0 0 0 0 - -

Prime rents (INR psft pm) 290 ($6.4) 300 ($6.6) 315($7.0) 350 (7.7) 350 (7.7) 0 21

SBD Take-up (sq ft) 87,000 35,000 55,600 229,500 107,200 -53 23 Availability (sq ft) 1,526,000 1,496,804 1,466,804 1,537,304 1,430,104 -7 -6 Availability ratio (%) 34 34 33 32 30 New supply (sq ft) 330000 0 0 300000 0 - -

Prime rents (INR psft pm) 175 ($3.9) 175 ($3.9) 185($4.1) 185($4.0) 185($4.0) 0 6

PBD (Gurgaon) Take-up (sq ft) 323,655 1,487,733 768,737 1,315,488 744,944 -43 130 Availability (sq ft) 9,567,218 10,774,744 11,523,452 10,249,732 10,454,788 -93 -92 Availability ratio (%) 28 30 31 27 27 New supply (sq ft) 160,000 2,245,066 1,050,000 770,000 950,000 23 494

Prime rents (INR psft pm) 82 ($1.8) 86 ($1.9) 90($2.0) 90($2.0) 90($2.0) 0 10

PBD (Noida) Take-up (sq ft) 940,518 308,200 392,500 397,181 96,200 -76 -90 Availability (sq ft) 5,900,054 6,183,825 6,881,414 7,423,233 8,011,336 8 36 Availability ratio (%) 43 43 45 45 47 New supply (sq ft) 250,000 545,000 1,089,589 939,000 684,303 -27 174

Prime rents (INR psft pm) 36 ($0.8) 38 ($0.8) 40($0.9) 40($0.9) 40($0.9) 0 11 Source: DTZ Research

Table 2

Leasing transactions

Address Micro-market Size (sq ft) Tenant Sector

Unitech SEZ Sector 48, Building 2 Gurgaon 200,000 Genpact IT/ITES

Unitech SEZ Sector 48, Building 3 Gurgaon 200,000 Cognizant IT/ITES

DLF Cyber City Building 5A Gurgaon 55,000 Emerson IT/ITES


Mumbai

8

• In Q3 2011, office space take-up in Mumbai showed signs of moderation. Demand from the IT/ITES sector, which is one of the principal drivers for office space in the city, was restrained. This can be attributed to delayed decision making by several IT companies owing to debt crisis in America and several European economies which account for over 85% of revenues to the Indian IT sector. Additionally, inflation induced uncertainty in Indian markets has forced companies to adopt a cautious approach towards expansion. As a result, total demand for office space in the city was recorded at 1.03 million sq ft (Figure 13), which was substantially lower than demand recorded in Q2 2011.

• In the current quarter, Mumbai witnessed a total new supply of 2.37 million sq ft, taking the overall office space stock in the city to over 81 million sq ft. This new supply, largely comprising Grade A developments was centered across off CBD (77%) and suburban (23%) locations. Nearly half of supply witnessed in Q3 2011 consists of large sized under construction projects.

• With limited pre commitments in new supply, overall vacancy levels in the city inched over 24% (Figure 13) as compared to 23% recorded in the previous quarter. However, “Grade A - Non IT” vacancy levels were considerably lower as is the supply. Highest availabilities were recorded in off CBD (43%) and the suburban locations (33%) where significant part of new supply was unabsorbed. CBD and New CBD locations witnessed lowest vacancies in the city, which were recorded at 6-7%.

• Office rents remained largely stable across all micromarkets in the city in Q3 2011. Rents are likely to remain under pressure over the next 3-6 months due to a large supply pipeline and a simultaneous anticipated slowdown in demand (Figure 15).

• An anticipated slowdown of the US economy is likely to increase outsourcing to India. A robust 7-8% growth of the Indian economy will ensure a reasonable level of absorption in coming months. This, however will only provide a cushion to pricing in the face of large upcoming supply.

Figure 13

Office take-up & availability ratio

10%

15%

20%

25%

30%

-

500

1,000

1,500

2,000

2,500

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011

sq ft (000s)

Take-up Availability RatioSource: DTZ Research

Figure 14

Office new supply

-

4,000

8,000

12,000

16,000

20,000

24,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

sq ft (000s)


Figure 15

Prime office rents

0

100

200

300

400

500

600

2006 2007 2008 2009 2010 2011(E) 2012(E) 2013(E) 2014(E)

INR per sq ft per month


Mumbai

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Table 3 Occupier market

Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q/Q change (%)

Y/Y change (%)

Directional outlook

Total

Stock (sq ft) 71,513,802 72,758,906 75,810,906 79,256,559 81,628,059 3 14

Take-up (sq ft) 1,908,379 2,100,000 1,260,000 2,068,441 1,027,097 -50 -46

Availability (%) 22 20 22 23 24

New Supply (sq ft) 2,581,000 1,245,104 3,052,000 3,445,653 2,371,500 -31 -8

CBD

Take-up (sq ft) 17,982 15,000 9,000 34,000 11,996 -65 -33 Availability (sq ft) 178,531 172,531 163,531 129,531 117,535 -9 -34 Availability ratio (%) 9 9 9 7 6

New supply (sq ft) 0 0 0 0 0 0 0

Prime rents (INR psft pm) 325 ($7.1) 325 ($7.1) 325 ($7.1) 325 ($7.1) 325 ($7.1) 0 0

Off CBD Take-up (sq ft) 42,815 375,000 175,000 150,000 300,000 100 601 Availability (sq ft) 1,094,385 1,610,969 2,032,069 3,282,069 4,812,069 47 340 Availability ratio (%) 16 22 25 35 43 New supply (sq ft) 0 731,354 600,000 1,400,000 1,830,000 31 -

Prime rents (INR psft pm) 190 ($4.2) 180 ($3.9) 180 ($3.9) 175 ($3.8) 175 ($3.8) 0 -8

New CBD Take-up 273,499 310,000 150,000 415,586 133,718 -68 -51 Availability (sq ft) 616,500 450,000 350,000 602,067 468,349 -22 -24 Availability ratio (%) 8 6 5 7 6 New supply (sq ft) 93,000 46,250 0 667,653 0 -100 -100


Suburban Take-up (sq ft) 370,138 800,000 225,000 943,400 241,001 -74 -35 Availability (sq ft) 6,767,475 6,250,000 6,025,000 5,571,600 5,922,099 6 -12 Availability ratio (%) 35 32 30 27 28 New supply (sq ft) 1,988,000 285,000 0 440,000 541,500 23 -73


PBD Take-up (sq ft) 1,203,945 600,000 701,000 525,455 340,382 -35 -72 Availability (sq ft) 6,777,322 6,350,700 7,950,700 8,363,245 8,022,863 -4 18 Availability ratio (%) 19 18 21 21 20% New supply (sq ft) 500,000 182,500 2,452,000 938,000 0 -100 -100

Prime rents (INR psft pm) 65 ($1.4) 65 ($1.4) 65 ($1.4) 65 ($1.4) 65 ($1.4) 0 0 Source: DTZ Research

Table 4 Leasing transactions

Address Micro-market Size (sq ft) Tenant Sector

Maker Maxity New CBD 75,200 Bank of Scotland BFSI

Nirlon Knowledge Park PBD 22,945 Citibank BFSI Source: DTZ Research

Bengaluru

www.dtz.com 10

0%

6%

12%

18%

24%

30%

-

600

1,200

1,800

2,400

3,000

3,600

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011

sq ft (000s)

Take-up Availability ratio (%)

• Absorption of office space remained high at 2.4 million sq ft in Q3 2011, on the back of a number of large pre-commitments in the PBD ORR submarket. However, this was a q-o-q decline of 26% from the record absorption achieved in the preceding quarter (Figure 16). Towards the end of Q3 2011, there appeared to be a change in the market conditions with a few corporations deciding to be cautious and go slow on their expansion plans, in the wake of turbulence in the global financial marketplace.

• Vacancy levels in the city moved marginally up to 18.3%, primarily because the total absorption did not completely offset the new supply during the period as pre-commitments accounted for half the deal closure in Q3 2011. Overall vacancy rates in city appeared to have bottomed out at 18.0% in Q2 2011 (Figure 16). Considering the significantly large supply scheduled for the next two years, vacancy rates are unlikely to improve further from the current levels. Among the various micro markets,vacancy remained low in CBD and SBD at 8% each, while it was at 23% in PBD. Among the various submarkets within PBD, it ranged between a low of 6% in PBD ORR to a high of 35% in PBD Whitefield submarket.

• A total of 1.6 million sq ft of new supply got ready for

fit-outs during Q3 2011, a drop of 8% q-o-q, as no new supply came in the SEZ category. Significantly large portion of the new supply was in the PBD ORR submarket which has witnessed consistently large demand for space in the past. The progressively increasing cost of loans and the limited financing options available to developers are likely to have an impact on the future supply pipeline (Figure 17).

• The rentals remained largely unchanged during the quarter, due to the uncertain global market conditions apart from the fact that domestic economic scenario remained far from ideal. Rental expectations also appeared to remain realistic, in the wake of unconfirmed reports of recruitment freeze in a few large MNCs (Figure 18).

• In spite of all the global uncertainties and the emerging signs of weakening GDP growth in the country, the demand for office space in the city is likely to exceed the new supply during the rest of 2011. However, the large new supply expected during 2012-13, even in the face of possible phasing out of some projects, is likely to restrain any uncontrolled spiralling of rentals in the city.

Figure 16

Office take-up and availability ratio


Figure 17

Office new supply

0

3000

6000

9000

12000

15000

2006 2007 2008 2009 2010 2011 2012 2013 2014

sq ft (000s)


Figure 18

Prime office rents

0

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011(E) 2012(E) 2013(E) 2014(E)



Bengaluru

www.dtz.com 11

Exchange rate: USD 1 = INR 45.7; * only PBD ORR sub-market commands the reported PBD prime rent

Table 5

Occupier market

Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q/Q change (%)

Y/Y change (%)

Directional outlook

Total Stock (sq ft) 83,019,68 83,849,295 84,012,289 85,738,480 87,322,965 2 5 Take-up (sq ft) 2,246,292 2,356,391 1,703,497 3,253,148 2,408,506 -26 7 Availability (%) 23 21 20 18 18 New Supply (sq ft) 140,000 829,606 162,994 1,726,191 1,584,485 -8 1032 CBD Take-up (sq ft) 236,964 204,651 106,256 94,986 71,639 -25 -70 Availability (sq ft) 719,506 601,256 556,494 690,807 625,101 -10 -13 Availability ratio (%) 10 8 8 9 8 New supply (sq ft) 140,000 152,000 0 0 0 0 Prime rents (INR psft pm) 72 ($1.6) 75 ($1.6) 75 ($1.6) 80 ($1.8) 80 ($1.8) 0 11

SBD Take-up (sq ft) 165,970 262,645 159,600 237,805 89,936 -62 -46 Availability (sq ft) 2,157,402 2,183,751 1,827,450 1,452,060 1,663,642 15 -23 Availability ratio (%) 10 10 9 7 8 New supply (sq ft) 0 0 0 150,930 250,000 66 Prime rents (INR psft pm) 50 ($1.1) 55 ($1.2) 55 ($1.2) 55 ($1.2) 55 ($1.2) 0 10

PBD Take-up (sq ft) 1,843,358 1,889,095 1,778,340 2,920,357 2,246,931 -23 22 Availability (sq ft) 15,882,833 14,569,131 14,086,171 13,310,819 13,716,019 3 -14 Availability ratio (%) 29 26 25 23 23 New supply (sq ft) 0 677,606 162,994 1,575,261 1,334,485 -15 Prime rents (INR psft pm)* 40 ($0.9) 42 ($0.9) 42 ($0.9) 45 ($1.0) 45 ($1.0) 0 13


Table 6


Address Micro-market Size (sq ft) Tenant Sector Adarsh Eco Place PBD 28,327 Qualcomm IT/ITES

Brigade Summit PBD 100,000 Volvo Automobile

Manyata Business Park PBD 701,200 CTS IT/ITES


Chennai

www.dtz.com 12

• The office market recovery in Chennai, which has been underway since the second half of 2010 slowed down considerably in Q3 2011. The quarterly absorption during the quarter moderated to 0.6 million sq ft, a q-o-q decline of 46% (Figure 19). The tightening monetary policy measures to tame the stubbornly high inflation, coupled with the grave prognosis for the world economy, was likely to have delayed expansion plans of a few large corporations. Most of the demand during the quarter was restricted to the some of the more sought after technology parks in the beginning of OMR, apart from the central areas of the city.

• Vacancy rate in the city increased marginally and stood at 27% at the end of Q3 2011 vis-à-vis 26% at the end of Q2 2011 (Figure 19). Overall vacancy rate the city appeared to have bottomed out by the previous quarter and is likely to move up from the current levels, albeit marginally, unless sustained demand for space firms up in the near future.

• New supply during Q3 2011 stood at 0.8 million sq ft, a q-o-q drop of 63%. All of this new supply was reported in the PBD OMR submarket. The supply pipeline in the city continued to be large, however, the slackening demand in the wake of cautious market sentiments is likely to result in further project delays over the next two years (Figure 20).

• The rentals across the city remained largely unchanged in Q3 2011 as the market activity was considerably subdued during the period. Eventhough the city boasts of significant presence of firms in banking, engineering, automotive, consumer goods, media and entertainment sectors, the demand for large Grade A space was primarily driven by IT and ITES (particularly BFSI outsourcing) firms. In the next few quarters, how demand from IT/ITES sector gets firmed up would determine the course of the rental movement across all micromarkets.

• In a decision which may make the development of SEZs slightly more attractive, the Union Government took the decision to allow SEZ developers to sell stake in their projects. As per the SEZ rules, transfer of land is not permitted within SEZs and the government has clarified that the dilution of equity stake would not be treated as transfer of land. This decision is likely to help some of the SEZ developers as it gives them an opportunity to pare down their high debt levels on their balance sheets.

Figure 19

Office take-up and availability ratio

0%

10%

20%

30%

40%

50%

-

400

800

1,200

1,600

2,000

2,400

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

sq ft (000s)



Figure 20

Office new supply

-

3,000

6,000

9,000

12,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

sq ft (000s)


Figure 21

Prime office rents

-

20

40

60

80

100

2006 2007 2008 2009 2010 2011(E) 2012(E) 2013(E) 2014(E)



Chennai

www.dtz.com 13

Exchange rate: USD 1 = INR 45.7

Table 7

Occupier market

Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q/Q change (%)

Y/Y change (%)

Directional outlook

Total (sq ft) Stock (sq ft) 43,311,029 43,311,029 44,811,029 46,963,574 47,763,574 2 8

Take-up (sq ft) 800,000 2,200,000 1,300,000 1,117,511 600,000 -46 -25

Availability ratio (%) 34 29 26 26 27

New supply (sq ft) 1,022,000 0 500,000 2,152,545 800,000 -63 -22

CBD

Take-up (sq ft) 27,000 175,000 36,000 84,000 105,000 25 289

Availability (sq ft) 949,437 850,500 818,000 988,545 985,545 0 4


New supply (sq ft) 180,000 0 0 254,545 0 -100 -100


SBD

Take-up (sq ft) 333,000 950,000 241,020 212,240 154,640 -27 -54

Availability (sq ft) 1,466,530 423,000 339,780 525,780 691,780 32 -53


New supply (sq ft) 0 0 0 698,000 0 -100


PBD

Take-up (sq ft) 440,000 1,075,000 1,022,980 821,271 340,360 -59 -23

Availability (sq ft) 12,833,429 11,716,711 10,388,851 10,567,580 11,226,980 6 -13


New supply (sq ft) 842,000 0 500,000 1,200,000 800,000 -33 -5

Prime rents (INR psft pm) 24 ($0.5) 24 ($0.5) 26 ($0.6) 26 ($0.6) 26 ($0.6) 0 8 Source: DTZ Research

Table 8


Address Micro-market Size (sq ft) Tenant Sector Ascendas ITPC PBD 75,000 BNP Paribas BFSI Bannari Amman Square CBD 12,000 Mitsubishi Corporation Manufacturing RMZ Millenia PBD 150,000 Verizon Telecom Source: DTZ Research

Pune

www.dtz.com 14

• In Q3 2011, Pune witnessed a total take-up of 0.42 million sq ft, a drop of 57% as compared to the previous quarter (Figure 22). This slowdown in demand can be attributed to a “wait and watch” policy adopted by most IT companies owing to debt crisis in several European countries and cautious outlook in American markets. With these geographies accounting for majority of revenues to Indian IT sector, IT/ITES companies have been guarded in executing their expansion plans.

• The SBD and PBD micro markets emerged as most active precincts in the city accounting for 52% and 31% of total take-up respectively. With take-up from BFSI and manufacturing sector largely being restrained, office space demand in the city continues to be driven by the IT/ITES sector.

• With significant part of new supply already precommited, vacancy levels in the city largely remained stable. As a result, overall vacancy levels in Q3 2011 was recorded at 28% (Figure 22). PBD witnessed the vacancy levels of 38%. However, availabilities in CBD and off CBD vacacny levels were recorded in the range of 9%-10%.

• With March 2014 set as deadline under the proposed Direct Tax Code (DTC) to occupy space in order to avail Special Economy Zone (SEZ) tax benefits, the city witnessed some transactions for SEZ space. SEZ space accounted for nearly 48% out of total take-up witnessed in this quarter.

• With high vacancy levels and moderation in demand, many developers are now going slow on under construction projects. As a result, the city witnessed a modest supply of 0.63 million sq ft in Q3 2011 (Figure 23), which was lowest when compared to last four quarters. Additionally, no significant new project were launched in the current quarter.

• After witnessing an appreciation in Q1 2011, rentals across micro markets have remained stable (Figure 24) in Q3 2011. This can be attributed to restrained demand and large upcoming supply.

• Cautious global market sentiments coupled with inflation induced uncertainity in Indian economy is likely to restrain office space take up over the next 3 to 6 months. Additionally, while demand is expected to remain at moderate levels, large upcoming supply over the next 6 to 9 months will keep rentals under pressure.

Figure 22 Office take-up and availability ratio

0%

5%

10%

15%

20%

25%

30%

-

200

400

600

800

1,000

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011

sq ft (000s)

Take-up Availability ratio


Figure 23 Office new supply

0

2,000

4,000

6,000

8,000

10,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

sq ft (000s)


Figure 24 Prime office rents

0

20

40

60

80

100

2007 2008 2009 2010 2011(E) 2012(E) 2013(E) 2014(E)



Pune

www.dtz.com 15


Table 9

Occupier market

Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q/Q change (%)

Y/Y change (%)

Directional outlook

Total

Stock (sq ft) 36,808,410 37,843,410 39,343,410 41,915,014 42,545,014 2 16 Take-up (sq ft) 650,000 850,676 525,600 967,189 418,500 -57 -36

Availability ratio (%) 24 24 26 28 28 New supply (sq ft) 400,000 1,035,000 1,500,000 2,571,604 630,000 -76 58

CBD

Take-up (sq ft) 30,000 40,000 15,000 66,500 15,300 -77 -49 Availability (sq ft) 382,100 441,748 426,748 360,248 344,948 -4 -10 Availability ratio (%) 10 12 11 10 9% New supply (sq ft) 0 99,648 0 0 0 - - Prime rents (INR psft pm) 70 ($1.5) 72 ($1.6) 75($1.6 ) 75($1.6) 75($1.6) 0 7

Off CBD Take-up (sq ft) 50,000 20,000 95,036 150,000 54,000 -64 8 Availability (sq ft) 265,900 362,900 472,864 322,864 348,864 8 31 Availability ratio (%) 8 11 13 9 10% New supply (sq ft) 0 0 200000 0 80,000 - - Prime rents (INR psft pm) 55 ($1.2) 55 ($1.2) 57($ 1.2) 57($1.2) 57($1.2) 0 4

SBD Take-up (sq ft) 80,000 50,600 80,564 125,689 217,500 73 172 Availability (sq ft) 1,047,000 1,057,000 982,000 1,156,311 1,488,811 29 42 Availability ratio (%) 12 12 11 12 15% New supply (sq ft) 0 0 0 300,000 550,000 83 - Prime rents (INR psft pm) 35 ($0.8) 35 ($0.8) 35($0.8 ) 35 ($0.8) 35 ($0.8) 0 0

PBD Take-up (sq ft) 490,000 740,076 335,000 625,000 131,700 -79 -73 Availability (sq ft) 6,964,160 7,194,596 8,164,053 9,810,657 9,678,957 -1 39 Availability ratio (%) 33 33 35 39 38% New supply (sq ft) 400,000 783,352 1,300,000 2,271,604 0 - - Prime rents (INR psft pm) 30 ($0.7) 30 ($0.7) 30($0.7 ) 30 ($0.7) 30 ($0.7) 0 0


Table 10


Address Micro-market Size (sq ft) Tenant Sector EON SBD 35,000 Eaton IT/ITES Business Plaza CBD 12,500 Auto Desk IT/ITES Source: DTZ Research

Kolkata

www.dtz.com 16

• Kolkata sustained robust absorption during Q3 2011 and reported overall absorption of 1.4 million sq ft. The total space take-up in Q3 2011 increased by more than 300% q-o-q (Figure 25). The PBD witnessed increase of 346% in take-up on q-o-q followed by CBD that witnessed 62% increase q-o-q. Along with Rajarhat this quarter witnessed strong activity in Salt Lake. The PBD accounted for 80% of the total take-up in Q3 2011. With expensive cities getting more expensive, Kolkata is expected to sustain the momentum. The PBD continued to be the preferred destination due to the availability of large floor plates with superior facilities at highly competitive rentals.

• Guided by no new supply and strong take-up in Q3 2011, the overall vacancy declined by 27% q-o-q and 3% y-o-y (Figure 25). All micro markets witnessed decrease in vacancy with PBD leading the pack. The vacancy level in PBD dropped by 28%, followed by CBD and SBD at 13% and 2% respectively.

• With no project completions reported during Q3 2011, stock remained unchanged q-o-q at 17.5 million sq ft (Figure 26). The trend is likely to continue into next few quarters. Few developments are expected to be completed in the coming quarters. Developers are holding off on any new project launches due to the current uncertainties in the global and domestic markets.

• Overall rentals remained stable across Kolkata due to modest vacancy in SBD and PBD. The CBD rentals remained static at INR 87 psft pm followed by SBD at INR 65 psft pm and PBD at INR 54 psft pm. The PBD markets of Rajarhat and Salt Lake remain the key markets for occupiers due to scalability options at competitive and stable rentals (Figure 27).

• Kolkata is emerging as the preferred destination as businesses try to cut down on their costs. The City is making the best use of its capabilities in terms of developing high standard infrastructure along with skilled man power. The demand in both commercial and retail markets is expected to remain robust in the next few quarters. However, considering the economic uncertainties the rentals are expected to stay stable in short to midterm to maintain the location attractiveness of the city. The IT/ITES sector will continue to be the primary demand driver.







Kolkata

www.dtz.com 17

Exchange rate: USD 1= INR 45.7

Table 11

Occupier market

Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q/Q change (%)

Y/Y change (%)

Directional outlook

Total

Stock (sq ft) 14,759,830 15,209,830 17,089,830 17,459,830 17,459,830 - 18

Take-up (sq ft) 135,000 124,300 496,600 310,000 1, 355,278 337 904

Availability (%) 21 23 28 28 20.5

New Supply (sq ft) 110,000 450,000 1,880,000 370,000 - - -

CBD Take-up (sq ft) 0 0 4,500 4,200 6,800 62 0 Availability (sq ft) 60,950 60,950 56,450 52,950 46,150 -13 -24 Availability ratio (%) 3 3 3 3 2 New supply (sq ft) 0 0 0 0 0 0 0 Prime rents (INR psft pm) 85 ($1.9) 87 ($1.9) 87 ($1.9) 87($1.9) 87($1.9) 0 2

SBD Take-up (sq ft) 0 0 2,500 4,000 2,000 -50 - Availability (sq ft) 19,885 119,885 117385 113,385 111,385 -2 460 Availability ratio (%) 3 15 15 15 14 New supply (sq ft) 0 100,000 0 0 0 - - Prime rents (INR psft pm) 60 ($1.3) 62 ($1.4) 62 ($1.4) 65($1.4) 65($1.4) - 8

PBD Take-up (sq ft) 135,000 124,300 489,600 301,800 1,346, 478 346 897 Availability (sq ft) 3,044,586 3,290,582 4,682,899 4,762,943 3,416,465 -28 12 Availability ratio (%) 25 27 33 33 23 New supply (sq ft) 110,000 350,000 1,880,000 370,000 0 - - Prime rents (INR psft pm) 50 ($1.1) 52 ($1.1) 54 ($1.2) 54($1.2) 54($1.2) - -


Table 12


Address Micro-market Size (sq ft) Tenant Sector Infospace Ph 2B Godrej Waterside DLF IT Park

PBD PBD PBD

90,000 70,000 17,000

Accenture Rose Valley Shapoorji

IT/ITES Hospitality Real Estate


Hyderabad

www.dtz.com 18

• Hyderabad reported subdued leasing activity in Q3 2011, after several quarters of robust demand. The total absorption during Q3 2011 declined 42% q-o-q to 0.6 million sq ft (Figure 28). The IT/ITES sector, which contributed to large demand for space during the first half of the year, largely adopted a cautious approach about expansion in the wake of the worsening cues in the global financial markets. Apart from this, the political turmoil, which also disrupted the registration of deals in the city for weeks, likely contributed to the reduced market activity during the period.

• Vacancy rates in the city, which progressively declined over the past few quarters, remained largely unchanged at 10% in Q3 2011 (Figure 28). However, the absorption over the next few years may not be sufficient to completely offset the corresponding large new supply during the period and hance the vacancy rates in the city is likely to increase from the present low levels.

• A number of projects earlier scheduled to become ready for fitouts in Q3 2011 were delayed and hence no new supply came to the market during the period. The total Grade A stock in Hyderabad remained unchanged at 26.4 million sq ft at the end of Q3 2011. Even though the large supply pipeline in the city remains a concern, the frequest upward revision in interest rates has impacted the cost of funds for the developers, and this in turn is likely to impact the project delivery timelines in at least a few cases (Figure 29).

• As the market activity moderated from the record high levels in the immediately preceding quarter, the average achievable rental remained unchanged. The large supply pipeline and the paralysis of several arms of the administration in the city in support of the ongoing political strike, is likely to affect market sentiments and hence any further rental increase is unlikley during the last quarter of 2011 (Figure 30).

• The city continued to remain one of the most attractive destinations for the IT industry, as it boasts of high calibre work force due to presence of some of the best educational institutions including the IIT, IIIT and ISB. Even though a number of firms have decided to be cautious and to reassess their expansion plans, the demand for office space in the city is likely to improve from the current levels, once more clarity emerges on the direction of the global economy, in coming months.


0%

10%

20%

30%

40%

0

500

1000

1500

2000

Q1 2010Q2 2010Q3 2010Q4 2010Q1 2011Q2 2011Q3 2011

sq ft (000s)




-

2,000

4,000

6,000

8,000

10,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

sq ft (000s)



0

20

40

60

80

2006 2007 2008 2009 2010 2011(E) 2012(E) 2013(E) 2014(E)



Hyderabad

www.dtz.com 19


Table 13

Occupier market

Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q/Q change (%)

Y/Y change (%)

Total Stock (sq ft) 23,912,146 24,579,146 24,579,146 26,399,146 26,399,146 0 10 Take-up (sq ft) 579,200 1,800,000 1,885,683 1,339,297 561,976 -58 -3 Availability (%) 16 11 9 10 10 New Supply (sq ft) 789,000 667,000 0 1,820,000 0 -100 Source: DTZ Research

Table 14

Occupier markets

Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q/Q change (%)

Y/Y change (%)

Directional outlook

Prime office rents

CBD 58 ($1.3) 58 ($1.3) 58 ($1.3) 58 ($1.3) 58 ($1.3) 0 0

SBD 65 ($1.4) 65 ($1.4) 65 ($1.4) 65 ($1.4) 65 ($1.4) 0 0

PBD 38 ($0.8) 38 ($0.8) 38 ($0.8) 40 ($0.9) 40 ($0.9) 0 5


Table 15


Address Submarket Size (sq ft) Tenant Sector

Divyasree Orion PBD 40,000 Keane IT/ITES

Raheja Mindspace PBD 18,713 Broadcom IT/ITES

Ascendas V park PBD 50,000 OSI systems IT/ITES

Cyber Pearl PBD 20,000 Salesforce.com IT/ITES

Cyber Pearl PBD 22,000 GSS Infotech IT/ITES Source: DTZ Research

Micro markets rentals

www.dtz.com 20

• Rentals across all cities have remained stable quarter-on-quarter

75

40

40

34

31

30

Koregaon Park / Bund Garden

Road

Aundh / Baner

Yerwada

Kharadi

Hinjewadi

Magarpatta

Pune Prime Space Rental Value

Rental Value

110

100

90

5555

54

35

AJC Bose Road

Camac Street

Park Street

Topsia RoadEM Bypass

Salt Lake

Rajarhat

Kolkata Prime Space Rental Value

Rental Value

55

55

65

65

3838

28

26

22

Begumpet

Somajiguda

Banjara Hills

Jubilee Hills

Madhapur,Gachibowli

Uppal

Pocharam

Shamshabad

Hyderabad Prime Space Rental Value

Rental Value

350

220

145

120120

70

70

60

Cannaught Place, Delhi

Saket, Delhi

Jasola, Delhi

Golf Course Road, Gurgaon

MG Road, Gurgaon

DLF Cyber City, Gurgaon

Sector 16, Noida

Sector 62, Noida

Delhi NCR Prime Space Rental Value

Rental Value

80 80

65

60

5555

50

45

40

30

MG Road

Residency Road

Cunningham Road

Koramangala

Intermediate Ring Road

C V Raman Nagar

PBD Hebbal

PBD ORR

Bannerghatta Road

Whitefield

Bengaluru Prime Space Rental Value

Rental Value

325

315

275

175125

100

70

45

Churchgate

BKC

Worli

Lower Parel

Andheri - Kurla

Goregaon -Malad

Navi Mumbai

Thane

Mumbai Prime Space Rental Value

Rental Value

75 75

75

65

554542

30

25

20

Anna Salai

R K Salai

Nungambakkam

Santhome

Guindy

Mount-Poonamallee Road

Perungudi, Taramani

Sholinganalur

Ambattur

Navalur, Siruseri

Chennai Prime Sapce Rental Value

Rental Value

Micro markets outlook

www.dtz.com 21

Occupier Market: 6 Month Forecast

Micro Market - City Upcoming Supply

Vacancy Levels

Take-up Rental 6 Month Outlook

CBD - Delhi NCR Low Low Moderate Stable - Low vacancy coupled with restrained supply will keep rental stable.

CBD - Mumbai Low Low Subdued Stable - While demand remains subdued, restrained availability of Grade A space will keep rentals stable.

CBD - Bengaluru Low Low Moderate Stable -Rentals may improve marginally, due to the commissioning of Phase 1 of Metro

CBD - Hyderabad Low Low Low Stable -Demand remains subdued while the low vacancy is expected to keep the rental stable.

CBD - Chennai Low High Moderate Stable -Mismatch in rental expectation has resulted in high vacancy. The situation is unlikely to change significantly over next 6 months.

CBD - Pune Low Low Moderate Stable - Rentals may witness an increase owing to buoyant demand for non IT office space & low Grade A vacancy.

CBD - Kolkata Low Low Moderate Stable - Rentals may witness an increase due to buoyant demand and low Grade A vacancy

Off CBD - Mumbai High High Moderate Under Pressure

- Large upcoming supply coupled with moderation in demand will keep rentals under pressure.

Off CBD - Pune Low Moderate Low Stable - Low vacancy coupled with restrained supply will keep rental stable.

New CBD - Mumbai High Low Moderate Stable - Driven by BFSI, demand will be buoyant. However, large upcoming supply will keep rentals stable.

SBD - Delhi NCR Low Low Moderate Stable - Low vacancy coupled with restrained supply will keep rental stable.

SBD - Mumbai Moderate High Moderate Under Pressure

- Even as availabilities remain high, upcoming metro project will enhance location attractiveness.

SBD - Bengaluru Low Low Moderate Stable -Vacancy remains low in the market while steady demand is expected.

SBD - Hyderabad Low Low Low Stable -Market activity is likely to remain subdued.

SBD - Chennai Moderate Low Moderate Stable -Low vacancy and steady demand is likely to keep the rentals steady in the face of new supply

SBD - Pune High High Moderate Under Pressure

- While demand remains buoyant for SEZ space, large supply & high vacancy will keep rentals under pressure.

SBD - Kolkata Low Moderate Low Stable Moderate vacancy coupled with low demand will keep rental stable.

PBD - Delhi NCR (Gurgaon) Moderate Moderate Moderate Stable - With demand driven by IT sector, cautious economic sentiments will restrain supply and take-up.

PBD - Delhi NCR (Noida) Moderate High Low Stable - With demand driven by IT sector, cautious economic sentiments will restrain supply and take-up.

PBD - Mumbai High High Low Under Pressure

- With demand driven by IT sector, cautious economic sentiments will retrain supply and take-up.

PBD - Bengaluru High High High Stable - In spite of signs of delays in deal closures, the demand pipeline remains strong in the city.

PBD - Hyderabad High High Moderate Under Pressure

-Rentals are under pressure in certain submarkets within PBD due to low preference shown by occupiers

PBD - Chennai High High Moderate Under Pressure

-Large new supply and the reducing demand is likely to put rentals under pressure

PBD - Pune High High Moderate Stable - The precinct is expected to witness buoyant demand for SEZ space.

PBD - Kolkata Low Moderate High Stable -Low vacancy coupled with high demand will keep the rentals stable.

Definitions

www.dtz.com 22

Stock Total accommodation in the private sector, both occupied and vacant. Take-up Floor space acquired for occupation including the following: 1. Offices let to an eventual occupier. 2. Developments pre-let or sold. Prime rent Represents the attainable prime rent that could be expected for a building/unit of the highest quality and specification in the best location. Vacancy Total floor space in existing properties, which are physically vacant, ready for occupation and being actively marketed. New supply Total floor space, which has reached practical completion (ready for fit-outs) during the survey period. The forecasted new supply for the upcoming years is estimated based on the developer announcements and timelines stipulated by them. Pre-let/Pre-commit A development leased or sold prior to completion. Development pipeline Total space which has received planning permission and will either be constructed or extensively refurbished. Q-o-Q Quarter on quarter Y-o-Y Year on year EOI Expression of Interest LOI Letter of Interest BFSI Banking, financial services and insurance FDI Foreign direct investment IT/ITES: Information technology / Information technology enabled services

Micro-market classification CBD – Central business district SBD – Secondary business district PBD – Peripheral business district Delhi NCR CBD: Connaught Place SBD: Nehru Place, Saket, Jasola and Vasant

Kunj PBD: Gurgaon, Noida, Greater Noida and

Faridabad Mumbai CBD: Nariman Point and Cuffe Parade Off CBD: Worli and Parel New CBD: Bandra Kurla Complex, Kalina and

Santacruz (East) Suburban: Andheri Kurla road and Andheri (W) PBD: Goregaon-Malad, LBS Marg, Powai, Navi

Mumbai and Thane Bengaluru CBD: M.G. Road, Richmond Road and Vittal

Mallya Road SBD: C.V. Raman Nagar, Intermediate Ring

Road and Airport Road PBD: Outer Ring Road, Whitefield, Electronic

City and Bannerghatta Road Chennai CBD: Nungambakkam, Anna Salai and RK Salai SBD: Guindy, Manapakkam and Vadapalani PBD: OMR, GST Road and Ambattur Pune CBD: Koregaon Park, Bund Garden, DP Road

and MG Road SBD: Viman Nagar, Kalyani Nagar, Kharadi and

Airport Road PBD: Baner, Aundh, Hinjewadi, Hadapsar and

Magarpatta Kolkata CBD: Camac Street, AJC Bose Road, Theatre

Road and JN Road SBD: Sarat Bose Road, EM Bypass and Topsia

Road PBD: Rajarhat, Salt Lake Hyderabad CBD: SP Road, Rajbhawan Road, Panjagutta

and Somajiguda SBD: Banjara Hills, Jubilee Hills PBD: HITEC City, Madhapur, Gachibowli and

Kondapur

Contacts

www.dtz.com 23

Management Team – India Anshul Jain – CEO India +91 99993 33900 [email protected] Occupational and Developments Markets Hugh Hamilton +91 99809 11651 [email protected] Project Management David Parsley +91 96322 03377 [email protected] Investment Advisory Rajeev Bairathi +91 124 459 7500 [email protected] Anuj Nangpal +91 22 4223 1600 [email protected] Research Rohit Kumar +91 124 4597500 [email protected] Press Contact Ruchika Rana +91 124 4597500 [email protected]

www.dtz.com

Disclaimer This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. © DTZ October 2011

dtz property times india q3 2011

Documents

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