Track2Realty:

Demand for residential real estate stabilised in 2012, with yoy growth in home loans from banks showing an uptrend from May 2012. However, the sales of large players declined marginally in 2012. Economic weakness continued with the associated apprehension of employee downsizing and salary freezes, which adversely affected consumer sentiments. Persistence of adverse sentiments, high inflation and high interest rates which reduce affordability, coupled with high property prices, continue to hinder improvement in demand. Commercial demand will be hit by subdued job growth in the IT sector, where average quarterly net headcount addition in 2012 has been around 28%-32% lower than in the previous two years. Demand for retail space is likely to be muted in the near term.

EBITDA margins which had been steadily declining from about 55% in FY08 remained at around 30% during 2012. With subdued sales and the lower level of profitability at which the industry seems to be stabilising now will keep financial leverage at elevated levels of around 6.5x in the short to medium term. To achieve a significant improvement in leverage, companies will need to rely less on debt financing and focus on buyer advances and internal accruals, a strategy which can only be adopted if there is an improvement in demand.

An encouraging trend noted by India Ratings is the easing of liquidity pressures. In FY12, companies generated positive free cash flows and the trend continued into H1FY13. Apart from stable demand, other efforts to improve liquidity included strategies like monetisation of land and non-core assets, exercising prudence in new launces and adopting the JV route to developing projects.

With funding options limited, the key to sustainability for real estate companies is growth in sales. During the first 11 months of 2012, banks’ exposure to the commercial real estate sector increased by just 1.7%. Private equity inflow into the sector has been moderate. The limited funding options imply a continuance of dependence on operational cash flows for funding growth and debt servicing. Commercial real estate developers, especially those with cash flow visibility through lease rentals, continue to have better credit profiles.

India Ratings-rated real estate companies include: Adarsh Developers (‘IND B+’/Negative), Ansal Housing & Construction Limited (‘IND BB-’/Stable), Bhoruka Park Private Limited (‘IND B’/Stable), Indian Express Newspapers (Mumbai) Limited (‘IND A-’/ Stable).

Track2Realty:

Mumbai on the other hand continues to drop further. The current report lists the city’s CBD – Nariman Point at 25th position. In July Mumbai was at 20th position. The latest survey provides data on office rents and occupancy costs as of September 30, 2012.

Anshuman Magazine, Chairman and Managing Director, CBRE South Asia, says, “In prime CBD Locations the supply of space is extremely limited with almost no new supply expected in the near future. This is specially true for quality office space which has led to occupancy cost remaining high.

The dominance of Asia-Pacific in the top 10 most expensive business locations worldwide continued, led by Hong Kong-Central – the world’s most expensive market – and five other Asian markets. However, it was a U.S. market, San Francisco (Downtown),that had the strongest year-over-year increase in prime office occupancy costs with a 36.4% rise driven by that market’s hot technology sector.

Hong Kong Central led the “most expensive” list with overall occupancy costs of US$246.30 per sq. ft. per year. This topped London’s West End, which had total occupancy costs of US$219.81. Tokyo (Marunouchi Otemachi) was the third most expensive market for office space, followed by Beijing’s CBD and New Delhi’s CBD. Other Asia-Pacific markets in the top ten include Beijing-Finance Street (6^th) and Hong Kong-West Kowloon (7^th).

Despite economic headwinds, occupancy costs increased by an average of 2.1% worldwide over the past year, led by the Americas with a 5.2% annual increase and Asia Pacific with a 2.6% increase. EMEA continued to be hindered by economic recession in much of Europe and recorded a 0.4% decrease in prime occupancy costs. Prime office occupancy costs increased in 74 markets, decreased in 37 office markets and had no change in 22 markets.

CBRE tracks occupancy costs for prime office space in 133 markets around the globe. Of the top 50 “most expensive” markets, 19 are in EMEA, 18 are in Asia-Pacific and 13 in the Americas.

While comparisons in dollars are affected by currency exchange rates, annual percent change calculations are based upon occupancy costs in local currency and not influenced by currency changes.

Top Ten 

Most Expensive Markets

(In US$ per sq. ft. per annum)

Largest Annual Changes 

Occupancy Costs

(In local currency & measure)

Top 5 Increases

Top 5 Decreases

]]> http://www.track2realty.com/new-delhi-moves-up-from-9th-to-5th-position-in-the-list-of-worlds-mosr-expensive-office-markets/feed/ 0 http://www.track2realty.com/top-25-real-estate-companies-q2-revenues-fall-4-to-rs-67-44-billion-knight-frank-india-report/ http://www.track2realty.com/top-25-real-estate-companies-q2-revenues-fall-4-to-rs-67-44-billion-knight-frank-india-report/#comments Wed, 12 Dec 2012 07:04:14 +0000 Track2Realty http://www.track2realty.com/?p=7748 Track2Realty:  India’s top 25 real estate companies have reported 4% year-on-year decline in cumulative revenues of Rs 67.44 billion in the second quarter ended September 30, another quarter highlighting the slump in the sector, a Knight Frank India report said.

The analysis of these realty developers’ quarterly performance indicates an improvement in sale momentum with focus on the residential sector. While the revenue of top 25 real estate companies declined by 18% in Q3FY12 and 9% in each of Q4 FY12 and Q1FY13, the margin of decline in Q2FY13 was lower at 4%

“The reason being the change in focus of developers on residential real estate which even in this tough economic environment fares better in comparison to commercial real estate,” the report said.

To track the growth in the sales volumes, Knight Frank has analyzed data for a set of 14 companies out of the top-25 companies that have consistently disseminated information on a quarterly basis. On a cumulative basis, this set of 14 companies has made sales of 18 million sq ft in Q2 FY13, which is a growth of 25.6% over a year ago.

The same period last year (Q2 FY12) witnessed sales decline by 30%. The sales volume data, indicator for the depth of the market, signals September’12 quarter was much better in comparison to the same period last year.

While the residential demand in major metros was the primary reason behind this uptick, improvement in state of project approvals in some western markets also helped the cause. On the backdrop of improved sentiment many developers accelerated residential project launches, Knight Frank said.

]]> http://www.track2realty.com/top-25-real-estate-companies-q2-revenues-fall-4-to-rs-67-44-billion-knight-frank-india-report/feed/ 0 http://www.track2realty.com/naredco-kpmg-releases-report-on-bridging-the-urban-housing-shortage-in-india/ http://www.track2realty.com/naredco-kpmg-releases-report-on-bridging-the-urban-housing-shortage-in-india/#comments Sun, 09 Dec 2012 13:58:22 +0000 Track2Realty http://www.track2realty.com/?p=7740 Track2Realty: India’s urban housing shortage is estimated at nearly 18.78mn households in 2012. By 2050, 900mn people will be added to Indian cities. The rapid pace of urbanization owing to the rural–urban migration is putting a strain on the urban infrastructure in these cities, indicates the KPMG – NAREDCO study on Real Estate and Construction industry, “Bridging the Urban Housing Shortage in India”.

The report discusses at length, the rising trend of urbanization in India and the looming urban housing shortage. It further deliberates on the constraints faced by real estate developers in their bid to bridge the gap through affordable housing. Finally, the study dwells on the measures that can be taken by various stakeholders, which can make housing affordable for the urban masses in India.

India’s urban housing shortage is estimated at nearly 18.78mn households in 2012. Besides those living in obsolescent houses, 80 percent of these households are living in congested houses and require new houses.

The report also highlights that nearly one million households are living in ‘non-serviceable katcha houses’, while over half a million households are in homeless conditions.

KPMG highlights the unavailability of urban land as one of the key constraints for Real Estate developers. High population density in urban areas has triggered a huge demand for urban land. There is a growing need to revisit previously conceived government regulations, which have created an artificial land shortage and pushed up land prices in India. Without Government support, the limited availability of land in urban areas makes it unviable for developers to take up affordable housing projects.

Delay in approvals from multiple local authorities, rising construction costs, lack of skilled manpower, financing constraints for low-income groups, limited financing avenues for developers, the need to relook laws & building guidelines and disputable taxation regimes, are the other key constraints for Real Estate developers, says the KPMG – NAREDCO report.

The Government needs to ensure adequate availability of land for housing and infrastructure by computerization of land records, use of Geographical Information Systems, efficient dispute redressal mechanisms and implementation of master plans”.

“Also, providing incentives, which can reduce the construction cost for developers would not only make the project viable for developers, but also make it affordable for the buyers”, he added.

Developers should leverage on innovative and low-cost technologies such as pre-fabrication, which can be used to construct affordable houses quickly and cost–effectively, suggests the report.

The Government should subsidize construction costs by providing exemption on taxes and duties on construction materials, providing subsidy to developers for R&D in new low-cost materials and technologies and by lowering the cost of borrowing for development of affordable housing projects.

Track2Realty:

In the global ranking of most expensive retail locations, Khan Market in New Delhi emerged as the 26^th most expensive in the world, retaining its position as most expensive retail location in India.  India however, dropped in the global ranking from 21^st to 26^th position due to the weakening of the Indian Rupee against US Dollar. Hong Kong’s Causeway Bay overtook New York’s 5^th Avenue as the most expensive retail location in the world. Paris gained two positions to settle at 3^rd position

Khan Market in New Delhi recorded the highest rental values for the year in India at approximately INR 1,225/sq.ft./ month, a marginal increase of 2%  over the previous year . This main-street has always been India’s most prime retail location, due to the advantage of being situated in the midst of the premium most residential boulevard of the capital city. With many major international and national retail brands being present in Khan Market, and little vacancy, consistent demand have kept the values high in this location.

Jaideep Wahi, Director Retail Services Cushman & Wakefield said, “Traditional high streets across India have been witnessing renewed interest from retailers thereby keeping rental values high in these locations. Additionally, the possibility of a boom in global retailers in India, existing global brands have been showing urgency to occupy prime retailing locations. Thus prime retailing locations of Mumbai, Kolkata and Chennai have recorded high growth in rental values in the last year.”

Prime rents in India rose by 12.5% on the back of strong occupier demand across all sub-sectors, however, retailers increasingly favoured high street properties evidenced by the significant rise in rental values of high street properties reflecting the bent of interest amongst retailers for high street properties.

Khan Market, the most expensive retail location in India, was followed by Mumbai’s Linking Road (Western Suburban) which recorded a rental value of INR 850/sf/mth. Traditionally high demand retail locations continued to see growth such as Mumbai’s Colaba Causeway, Kolkata’s Park Street and Chennai’s Khader Nawaz Khan Road recording high rental growth over the previous year, primarily driven by large volumes of footfalls that these locations attracted which has led retailers to seek out any available space in these areas.

Bengaluru’s traditional retail hotspot Brigade Road experienced a rental decline of 9% over previous year on account of excessive development work around the area making retailing an arduous experience in the area. Hyderabad’s Jubilee Road No. 36 and C. G. Road in Ahmedabad registered a slowdown in rental values of 7% over the previous year.

Rental values in shopping centres across the major seven cities rose over the year to June 2011, with the exception of selected Bengaluru locations where values declined due to the continuous infrastructure development in the area and the steady expansion of the city’s population to other locations. High streets rents in Kolkata, Bengaluru, Pune and Gurgaon recorded and appreciation in the range of 7%-20% compared with 2012-11.

Jaideep Wahi, said, “APAC region continued to attract retailers from across the world given its still robust economic conditions and a growth in the middle income groups across the region.  In India with new FDI in retail, there is a potential for change in the growth dynamics. ”

New Delhi, Khan Market ranked 7^th most expensive location in Asia Pacific region. Hong Kong, Tokyo and Sydney which also make it to the global top ten remained at the top three positions. Retailers continued to vie for Asia Pacific prime retail space, eager to tap into a generally younger and increasingly affluent middle class.

Despite a slower expansion than in 2010- 2011, occupier demand remained robust and prime rents rose by 8.6% over the year with the exception of marginal falls in two markets – Indonesia (3.2%) and Vietnam (1.0%) – values in the other eleven countries were either stable or witnessed an uplift. Looking ahead, although possibly losing some of its dynamism, occupier activity in Asia Pacific will remain healthy as international retailers struggling to generate profitable trading in their own markets, look for expansion opportunities in the region.

]]> http://www.track2realty.com/highest-global-rental-growth-in-mumbai-delhis-khan-market-26th-most-expensive/feed/ 1 http://www.track2realty.com/india-ranks-low-as-destination-of-data-centre-operations-cw-and-hurleypalmerflatt/ http://www.track2realty.com/india-ranks-low-as-destination-of-data-centre-operations-cw-and-hurleypalmerflatt/#comments Tue, 07 Aug 2012 09:25:23 +0000 Track2Realty http://www.track2realty.com/?p=6815 India emerged as the second most risk ridden Data Centre Location among the top 30 countries in a study conducted by Cushman & Wakefield and hurleypalmerflatt. The pioneering study ‘Data Centre Risk Index’ evaluated the risks to global data centre facilities and international investment in business critical IT infrastructure.

India has been at the centre of global outsourcing over the last few years driven by low cost mass IT processes which in turn have been backed by a range of data centres located in strategic cities such as Bangalore, Mumbai, Pune etc. Main parameters that looked to be deterrents to the attractiveness of the country and on which India scored the lowest were ‘Ease of Business’, ‘Inflation’, ‘GDP per Capita’ and ‘Corporation Tax’. India however ranked high on the parameters of ‘cost of labour’ and ‘sustainability’, which have been India’s advantages over the last two decades. Criteria such as Quality of power and outages represents a challenge in India which is often exacerbated by increasing IT loads.

Arvind Nandan, Executive Director, Consultancy, India Cushman & Wakefield says, “India and key Asian economies remain preferred locations for DCs and have witnessed a growth in demand owing to various advantages. India offers the advantages of cost benefits and sustainability of operations. We would expect the growth to continue as this is also coupled with a rising domestic demand for IT services where internet and mobile communication penetration is still moderate. Investment by overseas players continues showing confidence in the future potential of India. At the same time it is important to put in place various take initiatives for in developing other areas such as energy, bandwidth, improving business environment, data protection laws, etc., which can enhance the proposition for India”

More companies are looking to locate their data centres in the Nordic countries as they opt for renewable energy and carbon neutrality. Data centres account for a growing share of the carbon pollution associated with the IT industry. With the move to cloud computing, IT companies are spending more money on new space for data centres. Recently there has been criticism of several large technology companies for their alleged reliance on highly polluting coal to power their data centres.

Sustainability continues to grow in importance amongst companies. Yet the availability of renewable energy at an affordable cost is becoming more of a challenge. As a result, the Scandinavian countries are an increasingly attractive prospect. The colder climate allows improved free cooling or at worst, reduced mechanical cooling, and there is access to almost limitless supplies of hyrdo power or alternative renewable energy, with comparatively inexpensive rates.

Data centres house business-critical information technology systems. Any downtime has the potential to cost millions in lost revenue and threaten the viability of an organisation. The Data Centre Risk Index 2012 report evaluates risks to global data centre facilities, helping companies make informed investment decisions about where to locate their data centres, to increase their efficiency and lower costs.

The index ranks countries according to the risks likely to affect the successful operation of a data centre, risk factors such as energy costs, connectivity, and the likelihood of natural disasters or political instability. Building on the inaugural report last year and reflecting the ever-changing technological and political landscape, ten new countries and two risk categories – energy security and education – have been included. The risk factors are individually weighted to reflect the different risk levels and are arranged under a three tiered system, tier 1 being the most important and comprising risk factors – energy costs, international internet bandwidth capacity and ease of doing business.

The U.S. retains its first place ranking and is considered the lowest risk location for building and operating a data centre in the world. It holds top position for international bandwidth and performs well in the other tier 1 risk categories. It also has the largest percentage of its population completing tertiary education.

The UK secured the second position  largely driven by its high international internet bandwidth capacity and ease of doing business put it above all other European locations. Germany and Canada remain in the top five low risk locations.

Hong Kong has maintained its position as the location with the least risk in Asia, and ranks seventh. Republic of Korea (South Korea) was the second most attractive location in Asia, ranking at 13^th position. The other major global outsourcing location China

Keith Inglis, partner in the EMEA Data Centre Advisory Group at Cushman & Wakefield, said: “What we are seeing, certainly in the data storage market, is the rise of the Nordics, which may in the future dilute the market share from the traditional centres in Europe. Google has built a facility in Hamina, Finland and Facebook is constructing a substantial new data center in Lulea, Sweden. The cool climate is ideal for free cooling technologies and the abundance of renewable power and water make this region an increasingly attractive option. Iceland, ranked fourth is a new entrant to our Index and is the highest ranked of the Nordic counties.”

Stephen Whatling, Global Service Director at hurleypalmerflatt, said, “Indonesia, India and Brazil are all considered growth markets, but with barriers to entry, regulated markets and high energy costs they do score poorly relative to the more established economic markets. Connectivity is also a problem but as these markets continue to be invested in and the infrastructure becomes more developed we would expect them to rise up the rankings.”

]]> http://www.track2realty.com/india-ranks-low-as-destination-of-data-centre-operations-cw-and-hurleypalmerflatt/feed/ 0 http://www.track2realty.com/indian-cities-to-house-85-crore-by-2050-study/ http://www.track2realty.com/indian-cities-to-house-85-crore-by-2050-study/#comments Sat, 23 Jun 2012 12:15:20 +0000 Track2Realty http://www.track2realty.com/?p=6408 With growing urbanisation in India, nearly 85 crore people are estimated to live in cities across the country by 2050, a latest report by industry chamber CII and realty consultant Jones Lang LaSalle said.

According to the report, urbanisation in India is growing at the fastest rate among the BRIC nations, putting a pressure on the cities.

“India is witnessing urbanisation on an unprecedented scale with the share of the urban population increasing from 28 per cent in 2001 to 31 per cent in 2011,” said the report, Indian Realty — Through the Looking Glass.

The study said that as per United Nations estimates, India has the highest urban population rate of change among the BRIC nations.

“At this rate, an estimated 843 million people will live in Indian cities by 2050, a figure which is the combined population of present day USA, Brazil, Russia, Japan and Germany,” it added.

Due to the extreme rate of urbanisation, the country’s face is changing with the fast evolving skylines, mainly in the cities, filling with skyscrapers and different types of architectures.

“Meanwhile, the smaller towns and cities are witnessing a metamorphosis through the expansion of roads and flyovers, real estate development and open areas,” the report said.

The report, prepared by JLL for CII, also said the rapid urbanisation is expected to offer large-scale opportunities for real estate and infrastructure development in the cities as well as access to a large skilled workforce.

In this light of rapid urbanisation, the report also highlighted another fact of gradually decreasing the average age of Indian population.

“It is estimated that in 2020, the average age in India will be only 29 years compared with 37 in China and the United States, 45 in Western Europe and 48 in Japan, providing immense opportunities for growth and development across industries wanting to reap this demographic dividend,” it added.

Currently, nearly 64 per cent of the Indian population is in the 15-64 working age-group and 35 per cent is in the 15-34 years age-group.

The growth in opportunities due to this rising young population will increase employment, leading to a rise in disposable incomes and consumption expenditure.

Over the last one year, capital values rose by more than 30-35% in Gurgaon’s residential sector. Developers are now going slow on execution of real estate projects, resulting in a drop in supply of residential apartments in most prime markets. Emerging residential areas are still not able to meet the huge housing demand.

Two key reasons for increasing rental and capital values for residential properties are:

Because of rampant construction delays, the expected supply of residential properties announced in early 2009 has not been able to reach the market. Around 500,000 units that were scheduled for possession in key markets by end of 2011 are delayed by another year

There has been an increase in lateral hiring by corporates. With job scenario improving all over the country, people have more to spend. This has resulted in good investment opportunities, and investor sentiments in the affordable and mid-income segment of Gurgaon’s residential market have improved.

HOT LOCATIONS

Residential property prices on the upcoming southern peripheral road connecting to National Highway 8 have seen considerable appreciation over the past few months. This location holds great investment potential thanks to enhanced connectivity that NH8 provides to Manesar and Dwarka. In particular, residential properties along the Dwarka Expressway have attracted interest from the mid-income buyer group. As prices soar in upcoming locations of Gurgaon such as Golf Course Extension, Sectors 70 and Sector 78, buyers have been looking at these alternate locations.

THE DOWNSIDE

That said, not all residential projects rank equally from an ROI perspective. Whatever appreciation in capital values Gurgaon residential properties have seen does not seem as significant when seen in the light of factors like the higher interest rates on home loans. Nominal capital appreciation of a property may be as high as 25-30%, but the actual ROI after making adjustments for inflation and higher interest rates can be nil. There is a 75% chance of investing in a property that will not give investor any gains – and in some cases it may even result in a loss.

Gurgaon is expected to see a residential property supply explosion. There are 55,000 ready flats on the market today. We expect to have around 6000 ready flats by end of 2012, with an additional 65,000 by the end of 2014. Another 20,000 in 2015 will take the final tally to almost 150,000 by the end of 2015.

Out of the total supply, properties which offer locational advantages in terms of vicinity to airport and Metros connectivity will have better absorption. Strategic location and superior amenities will be the keys to profitable residential property investment in Gurgaon in the foreseeable future.

LONG-TERM FUNDAMENTALS

Gurgaon remains promising for office space, and there are good prospects for more major global players setting up operations here in near future. On the whole, this augurs well for the residential property market, more or less assuring relatively healthy absorption of residential space in the times to come.  The new infrastructure initiatives being undertaken by the Government will also play a crucial role for Gurgaon’s residential and commercial property sectors.

]]> http://www.track2realty.com/gurgaon-residential-property-investor-update/feed/ 2 http://www.track2realty.com/jll-asia-pacific-property-digest-bangalore/ http://www.track2realty.com/jll-asia-pacific-property-digest-bangalore/#comments Mon, 25 Jul 2011 08:45:48 +0000 Track2Realty http://www.track2realty.com/?p=3160 Bangalore: Grade A Office

• Demand continued to be robust in Bangalore with corporates expanding and leasing large spaces.
• Rents continued to increase in 2Q11 due to the growing demand and limited ready- to occupy space in CBD and SBD micro-markets.
• The high occupancy levels due to the growing demand resulted in increase of capital values in the CBD and SBD micro-markets.

Demand
Bangalore continued to witness robust demand with corporates expanding their head-counts in the city and leasing large spaces. Few corporates who expanded in 2Q11 were Cisco, Accenture, Ciber and Delloite. Most of the leasing was focussed in the SBD. Pre-commitments also remained strong in 2Q11. Overall Bangalore witnessed a total net absorption of 2.05 million sq ft (191,261 sqm) in 2Q11.This included 1.76 million sq ft of net absorption recorded in CBD and SBD.

CBD witnessed Lifesize Communication leasing 21,764 sq ft (2,021 sqm) in Salarpuria Windsor in Ulsoor Road. While few transactions recorded in SBD were Accenture leasing 130,347 sq ft (12,109 sqm) in Pri Tech Park at Outer Ring Road, SBD. Leasing remained strong in the suburbs of Bangalore also. Few key leases closed this quarter in the suburban micro-markets were Fidelity Information Service leasing 93,480 sq ft (8,984 sqm) in SJR I Park and Huawei’s lease of 31,458 sq ft in Prestige Shantiniketan both at Whitefield.

Supply
There was completion of only one project in SBD in 2Q11. Prestige Exora Block B2 located in Outer Ring Road commenced operations in 2Q11 and added about 0.7 million sq ft of space to the total stock of Bangalore which stood at 62 million sq ft at the end of 2Q11. Prestige Exora Block B2 which is a STPI building was operational with high occupancy. The key occupiers in this building are JP Morgan Chase and Juniper Networks. There were no completions in the CBD micro-market during this period.

Asset Performance
Average rents for office space in the CBD increased by 4.65% in 2Q11 which is about 9.5% increase from its last trough in 3Q10.Similarly the SBD also witnessed increase of about 5.33% on 2Q11 which is about a15.8% from its last trough in 3Q10. The appreciation of rental and capital values was higher in the CBD and SBD micro-markets than in other suburban micro-markets due to ongoing growing demand and limited ready-to-occupy office space.

Capital values in CBD continued to increase in 2Q11 by almost 4.5% which is about an increase of 10% from its last trough in 3Q10. Capital values in SBD witnessed an increase of about 5% in 2Q11 which is about an increase of 14.6% from its last trough in 3Q10. The high occupancy levels due to the growing demand resulted in increase of capital values in these micro-markets. However both the micro-markets did not witness any sale transaction in 2Q11.

12-Month Outlook
By end-2011, the CBD and SBD micro-markets are likely to have seen absorption of 2.74 million sq ft. These micro-markets are expected to witness new supply of 1.53 million sq ft by the end of 2011. Overall Bangalore commercial office space market is expected to witness new supply of about 6.44 million sq ft. Secondary and Whitefield micro-markets are expected to witness majority of the leasing activity in the city.

Gross rents and capital values across all the micro-markets increased in 2Q11 in a trend that is expected to continue until end -2011. Bangalore is expected to be in the rent rising cycle until end – 2011.

Bangalore: Retail Market

• Leasing activity remained strong in the prime high streets of Bangalore with large format retailers expanding their foot prints in the high streets of the city.
• Rents remained stable in the prime micro-markets but increased by almost 11% in suburban micro-markets
• Capital value increased by almost 11% in the suburban micro- market.

Demand
High street demand remained strong in Bangalore with large format retailer such as Reliance expanding their brands such as Reliance Digital and Jewel by leasing large spaces in the city. The malls in the city also witnessed good pre-leasing activity in 2Q11. The high Street micro-markets in the Indiranagar, Koramangala, Whitefield, BEL Road and Old Madras Road areas accounted for 148,676 sq ft of the leasing activity.

Overall the market recorded net absorption of 600,000 sq ft (55,742 sqm) in 2Q11. Vacancy rates decreased from 5.5% in 1Q11 to 4.9% in 2Q11 due to the completion of the Royal Meenakshi Mall with high occupancy rate and negligible vacancy. The key transactions in 2Q11 were Reliance Digital leased about 110,000 sq ft (10,219.3 sqm) in high street of Sahakarnagar, Sabaro’s leasing of 320 sq ft (27.9 sqm) in Orion Mall in the Secondary micro-market.

Supply
The Royal Meenakshi Mall of 600,000 sq ft on Bannerghatta Road commenced operations in 2Q11. The mall commenced operations with high occupancy due to strong pre-commitments in the previous quarters. The mall has presence of large format brands such as Hypermart, Max and Reliance Trends and good number of small format stores such as Louis Philippe, Melange, Reebok, Nike, Fab India etc.

Asset Performance
The rents remained stable at 1Q11 level in 2Q11 in the prime micro-markets of Bangalore. The rents have remained stable for last five quarters as there is negligible leasable space in the malls in prime micro-markets. However the suburban micro- market has witnessed an increase of about 11% in rents in 2Q11 after remaining stable for last four quarters. This increase in rental values in this micro-market was due to completion of Royal Meenkashi mall, where the rental values are above the micro-market average.

The capital values remained stable at 1Q11 level in 2Q11 in the prime micro-markets and kept the yields stable at 11%. However the capital values in suburban markets increased by almost 11% in 2Q11. The yields remained stable at 11.8% in the suburbs in 2Q11.

12-Month Outlook
Demand is expected to gain momentum and so does absorption. By the end-2011absorption is expected to be about 2.31 million sq ft of the 3.3 million sq ft of space that will be available. At the same time, construction in projects nearing completion is likely to accelerate. Considering the five malls currently under construction and in the pipeline, we estimate vacancy rates to rise from 5.8% in 2010 to 16.4% by end-2011.

Rental and capital values across all micro-markets are expected to have increased by end-2011. In particular, we forecast rental values in the Prime City micro-market to have reached a range of INR 184-250 per sq ft per month by the end of the year due to a lack of supply amid growing demand. In malls in the Suburban micro-market, rental values are expected to have increased by 8% to 10% by end-2011 due to ongoing leasing activity in such upcoming malls as Park Square by Ascendas and Market City by Phoenix Mills in Whitefield. Increase in rental values despite the increase in vacancy is due to the good quality malls leasing their space at rents higher than the average market rental values.