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End Notes 46
EXECUTIVE SUMMARY
The year 2008 proved to be quite eventful for India's realty nearly 6% in 2008, with almost 30% of this space take-up
sector. Following the boom of the past couple of years, the being dominated by pre-commitments from last year. Fresh
sector was faced with the beginning of a downturn. Perhaps pre-commitments made in 2008 amounted to 12.8 million
'turbo-coupled' (the 'de-coupled' theory having rendered sq. ft., a 45% drop from 2007.
passé by now) with the global economy, by mid-2008 the
A considerable difference between supply and absorption,
effects of the US sub-prime crisis together with the stock
however, led to rising vacancy rates across all micro-markets,
market crash had reached Indian shores. Evaporating liquidity
causing significant rental corrections in the year. Though the
and gradually disappearing demand for real estate spaces lead
total office supply projection for 2009 is approximately 88
to corrections in prices across all asset classes by end-2008.
million sq.ft., Cushman & Wakefield Research estimates only
Tier-II and III cities and towns experienced a relatively lesser
about 50 million sq. ft. to get delivered by end-2009.
impact of the economic downturn in 2008.
On the retail front, the year saw an approximately 17%
The realty sector is currently facing significant trouble on increase in mall supply over 2007 at India's top metropolitan
declining housing sales and unavailability of finances. Under the centres. But at 9.6 million sq. ft., it was a substantial shortfall,
circumstances, as investment capacity gets impacted, large of more than 50%, from mall supply projections made earlier.
volumes of high-priced residential stock (as also, the supply Despite shortfall in mall supply, vacancy rates remained at a
pipeline) will need to re-align pricing. There is a likelihood of national average of 9%, suggesting that most malls were
continued delay in execution of on-going projects as well as finding it difficult to manage operational costs. By mid-2008,
postponement of newer developments in the housing sector. the supply shortage compounded by a demand slowdown had
The total supply for commercial office space across the top pushed down rentals, which fell significantly across most
1
eight cities of India in 2008 was approximately 60 million sq.ft. micro-markets. The correction in 2009 will in all likelihood
(about 34% higher than the previous year), with SEZ supply reach the non-metros, as the ripple effect of the economic
recorded at approximately 19.3 million sq. ft. Commercial downturn reach tier-II and III locations.
office space absorption across the top cities increased by
1
INDIA ECONOMIC OUTLOOK
The Indian economy experienced a setback in 2008 after Delhi Mumbai Industrial Corridor (DMIC), the Elevated
registering a robust growth pattern over the last couple of Expressway in Bangalore connecting Hosur Road to
years. India's GDP growth, which was recorded at 9% in 2007- Electronics City and several airport projects across the
08, saw a downward trend in 2008-09 and is estimated to country that are underway. Public Private Partnerships (PPP)
reach around 7% in 2009-101. In spite of this decline, it still too have proved to be a successful model for various projects
remains the second fastest growing economy in the world. ranging from mass rapid transport systems (MRTS) and roads
The country's growth drivers in the past few years have to airports and sea ports.
remained the agriculture, services, manufacturing, trade as well
Foreign Direct Investment (FDI)
as the construction sectors.
Since the opening up of the real estate sector in 2005, Private
Inflation reached an all time high of 13% in August 2008 which
Equity (PE) funds in India have been very active. A large
triggered the RBI to address the issue by raising the Cash
number of transactions have been recorded in the past three
Reserve Ratio (CRR), Repo and Reverse Repo Rates. As the
years at entity, portfolio and Special Purpose Vehicle (SPV)
cash crunch gained prominence, affecting growth rate and end
level. According to the Indian Department of Industrial Policy
user demand, fiscal stimuli were infused into the economy for
and Promotion (DIPP), there has been a substantial amount of
curbing inflation by the end of the year (from 13% in mid-
1 FDI inflow into the housing and Real Estate (RE) sector, with
2008 inflation fell to 5% by end-2008) .
approximately 78% of last year's inflows already having been
The real estate sector was greatly affected in 2H 2008 in light accumulated during the first six months of FY 2008-09. Given
of testing economic times. As the tremors of the US recession the current global and domestic economic situation in which
trickled to affect the home markets, banks and financial the Indian realty sector has been affected too, 2H 2008 hardly
institutions alike turned apprehensive of funding projects that witnessed any FDI inflows.
were earlier nurtured by foreign institutional investors (FIIs).
FDI inflow in Housing & Real Estate Sector
This resulted in the slowing down of several developments
that were under progress as well as the deferment of supply 100,000
for the year. The corporate sector too remained cautious and
restricted themselves from the aggressive expansion plans 80,000
Investment (INR million)
the power seat as he holds the negotiation key in the realty Source: www.dippnic.in
markets today.
Infrastructure development has always remained the focus of 1 Interim Budget 2009 - 10 by Govt. of India (http://indiabudget.nic.in/)
2
INDIA ECONOMIC OUTLOOK
Private Equity (PE) Deals
Though economic factors were challenging in 2008, it highest fund-raising year in the history of the industry. India
remained a successful year for the global private equity too registered significant investment in the first half of 2008
industry as the first half of the year witnessed significant while the last quarter has been affected the most with
activity in this area too. According to Private Equity substantial projects being shelved. A few of the representative
Intelligence (PREQIN), the year 2008 was globally the second PE deals in 2008 across various asset classes are listed below:
Residential
Investor/Fund SPV Parent Company Kind of development Location of the project Proposed/Invested Investment
Citigroup Venture Indu Projects Residential project Hyderabad Invested USD 50 million
Capital International
ICICI Prudential PMSI DS Kulkarni Developers Residential project Bangalore Invested INR 35 crore
Real Estate Portfolio
HDFC AMC Ansal Properties & Residential project NOIDA Invested INR 236 crore/
Infrastructure USD 55 million
Westport Capital, Alliance Group Residential project Hyderabad Invested USD 100 million
US based firm
Red Fort Capital Indu Projects Residential project Hyderabad Invested INR 220 crore
Retail
Investor/Fund SPV Parent Company Kind of development Location of the project Proposed/Invested Investment
Yatra Capital Palladium Constructions Retail cum residential Bangalore Invested INR 111.62
building complex crore
Triangle India Real Provogue (India) Ltd Retail Aurangabad, Indore, Proposed INR 457 crore
Estate Fund Nagpur and Jaipur
Commercial
Investor/Fund SPV Parent Company Kind of development Location of the project Proposed/Invested Investment
TAIB Logix TechnoPark IT Park NOIDA Invested USD 69 million
Citi Property Investors BPTP IT Park Gurgaon Invested USD 160 million
Red Fort Capital Godrej Properties IT Park Kolkata Invested NA
Yatra Capital Riverbank Holdings Pvt. Ltd IT SEZ Kolkata Invested INR 115 crore
DE Shaw HDIL IT Park Mumbai Invested USD 250 million
Source: Cushman & Wakefield Research
3
REALTY SECTORAL OUTLOOK
Commercial Office Space Retail Space
The total supply for commercial office space across the top Though the year 2008 saw approximately 17% increase in
eight cities of India in 2008 was approximately 60 million sq.ft. mall supply over 2007 at India's top metropolitan centres
While this was about 34% higher than supply of the previous at 9.6 million sq. ft., it was still a significant shortfall, in
year, it was also 24% less than the office supply projected for excess of 50% from earlier mall supply projections. The
2008 at the beginning of the year. Delhi NCR accounted for average mall vacancy rate for the top seven cities (see table
the highest supply (14.07 million sq.ft) in 2008, followed by below) stood at 9% in 4Q 2008, with Delhi NCR witnessing
Bangalore, Chennai and Mumbai. These four metropolitan the highest mall vacancy rate, suggesting that most malls
centres together accounted for nearly 74% of the total office across India were finding it difficult to manage their
supply across the major cities. SEZ supply for the year was operational costs. This was largely due to uneven distribution
recorded at approximately 19.3 million sq. ft., with Bangalore of mall space in the major cities, where mall supply has been
accounting for the highest SEZ supply (5.71 million sq.ft), concentrated within a single district targeting same or similar
followed by Pune (4.1 million sq.ft) and Chennai (3.87 million consumer profiles. From the retailers' point of view, the
sq.ft). preference largely remained for premium high streets over
malls, further aggravating the situation. In 2008 the highest
Commercial office space absorption across major cities
level of vacancy was witnessed in NCR (24%) and Pune (15%),
increased by nearly 6% in 2008 with almost 30% of the total
while the lowest vacancy level was witnessed in Chennai at
dominated by pre-commitments from previous years. Delhi
approximately 1%.
NCR saw nearly 5.86 million sq. ft. of pre-commitments for
projects due in 2009, the highest among all major cities. Fresh Price Fluctuations in Major Markets
pre-commitments for the year (to be absorbed by 2009) City Vacancy Locations Rental %
amounted to 12.8 million sq. ft., which was a 45% drop from Rate in Change
4Q 08 Over 1 Yr
that of 2007 and stands testimony to the cautious expansion
plans from the corporate sector in this current overcast NCR 24%
economic climate. With fresh pre-commitments having Main Street CP/Karol Bagh/Basant Lok -16%
declined in 2008 over 2007, the impact will certainly be felt in Mall West Delhi -27%
the space absorption trends of 2009. PUNE 15%
Office Supply Mall Ganeshkhind Road -14%
16 Main Street MG Road -13%
14
MUMBAI 10.20%
Area (million sq. ft.)
12
10 Mall Lower Parel -27%
8
Mall Vashi -17%
6
4 KOLKATA 5.60%
2 Main Street Theatre Road -15%
0
Ahmedabad
Hyderabad
Chennai
Mumbai
Bangalore
Kolkata
Pune
NCR
Hyderabad
Chennai
Mumbai
Bangalore
Kolkata
Pune
NCR
2007 2008
4
REALTY SECTORAL OUTLOOK
Over the last six months quality real estate supply shortage, By the year-end one could see the correction rolling in on the
compounded by a demand slowdown in the segment, has cities that had seen the highest percentage increase in values
pushed down rentals which are likely to witness a further during the bull-run and across the nation the most overheated
drop in the coming quarters of 2009. The last quarter of 2008, micro-markets saw the deepest of corrections from their peak
especially, recorded a fall across main streets and malls in values.
most micro-markets; with rentals likely to see further
Price Fluctuations in Key Markets
weakening in the short- to mid-term.
City Values Locations % Change
Mall Supply 2007-08 Over 1 Yr
AHMEDABAD
5.00
4.50
High End Capital Navarangpura -13%
4.00 BANGALORE
Area (million sq.ft.)
3.50
3.00
High End Capital Koramangala, Outer -10%
2.50 Ring Road
2.00
Mid End Capital Marathhalli, Whitefield, -17%
1.50
1.00
Airport Road
0.50 Mid End Rental Koramangala, Jakkasandra -10%
0.00
CHENNAI
Ahmedabad
Hyderabad
Chennai
Mumbai
Bangalore
Kolkata
Pune
NCR
5
MUMBAI MARKET OUTLOOK
Vasai Creek
Bhiwandi
Bhandup Thane
Jogeshwari Belapur Rd
Andheri
NAVI
Santacruz (E) Ghatkopar MUMBAI
Bandra (W) Vashi
Bandra (E)
Mahim
MUMBAI Belapur
Worli
Lower
Parel
Kemps
Corner Shedung
Kolkhe
Village
Village
Fort/ Fountain
Nariman
Point
Colaba
2% 16%
2% 2% 3% 3%
55%
IT/ITeS BFSI Others Construction
Commercial IT SEZ IT Media Aviation Pharmaceuticals Manufacturing
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
6
MUMBAI MARKET OUTLOOK
in a supply of about 458,000 sq.ft. in 2008. The space With the slowdown in global economy, many corporates have
constrained city also witness it's first SEZ supply of 1.6 million eased or postponed their expansion plans resulting in subdued
sq.ft. in suburban location of Powai. demand for office space in the city. As a result Mumbai
1
witnessed an overall vacancy of about 12% in 2008 which is
In 2008 the total demand for commercial office space in
significantly higher as compared to 2007, when the vacancy
Mumbai was recorded at 5.32 million sq.ft. which was about
levels were recorded at about 4-5%. Vacancy in CBD inched
15% higher as compared to the demand in 2007.
closer to 5% in 2008 as compared to 1-2% in 2007 on account
Concerned with rescheduling of timelines of under of restrained demand and low renewals of expired lease
construction projects by several developers, tenants showed agreements by corporates. Off CBD locations like Worli and
increasing preference towards ready to move opportunities. Lower Parel witnessed a vacancy of approximately 7-9%.
As a result, the total demand in 2008 was driven by Vacancy levels in suburban markets of Andheri, Malad and
absorption rather than pre-commitments. Bandra soared to 14-15% due to large fresh supply coupled
with low demand in these markets.
Of the total demand for 2008, absorption comprised of
approximately 3.36 million sq.ft. while new pre-commitments Average Rental Values - Office Districts2
were recorded at 1.96 million sq.ft. Additionally about 5.16 500 0
100
-25
Supply, Absorption and Vacancy Trends
0 -30
14
Nariman
Andheri
Bandra
Malad - IT
Powai - IT
Vashi - IT
Belapur - IT
10
Kurla
Lower
Kurla
Parel
Point
Worli
Thane
9 12
8
10
Area (million sq.ft.)
7
Vacancy Rate (%)
2
1 500
0 0
2003 2004 2005 2006 2007 2008 400
100
IT/ITeS and BFSI sectors continued to remain the principal
0
drivers accounting for 43 % and 29% of the total commercial
1Q - 04
2Q - 04
3Q - 04
4Q - 04
1Q - 03
2Q - 03
3Q - 03
4Q - 03
1Q - 06
2Q - 06
3Q - 06
4Q - 06
1Q - 07
2Q - 07
3Q - 07
4Q - 07
1Q - 08
2Q - 08
3Q - 08
4Q - 08
1Q - 05
2Q - 05
3Q - 05
4Q - 05
developers, albeit their contribution to overall demand was Source: Cushman & Wakefield Research
marginal.
Mumbai witnessed a drop in rental values across most micro
Of the total demand, about 222,000 sq.ft. of office space was markets in 2008. Highest rental drop of 25% was recorded in
also absorbed by business centres in locations like Bandra, Andheri followed by Malad (-11%) and Bandra (-9%). Drop in
Lower Parel and Fort. Some of the major business centre rental values in these markets can be attributed to low
players operating in the city included Avanta, Regus, Stylus and existing demand coupled with increasing vacancies and large
DBS. upcoming supply in these micro markets.
With STPI benefits slated to end in 2009-10, Mumbai Subdued demand and increasing vacancy rates led to a drop in
witnessed significant demand for IT - SEZ space in 2008. The rental values at Nariman Point and Worli by 9% and 13%
supply of 1.6 million sq.ft. of SEZ space in Powai was almost respectively. However rental values at Lower Parel,Vashi and
entirely absorbed due to lack of other SEZ options in the city. Thane Belapur Road have largely remained stable due to
Significant demand was also recorded at Bandra (17%), Lower limited supply in these markets.
Parel (13%) and Malad (11%)
1 Demand= Fresh Pre commitment + Fresh Absorption for the year.
2 Average rentals are for bareshell facilities
7
MUMBAI MARKET OUTLOOK
Outlook RESIDENTIAL
The office space market in 2009 is likely to be characterized The global economic slowdown affecting the Indian economy
by large anticipated supply (approximately 16 million sq.ft.), on the whole had a direct bearing upon the residential market
rising vacancy rates and reduced demand. Given a rather which saw a gradual slowdown in investor activities. Monetary
stringent macro economic environment, developers and measures to curb inflation not only led to increase in home
landlords are likely to experience difficulty in maintaining loan interest rates but also curtailed availability of funds to
rental values at current levels. real estate developers in second half of 2008. This, coupled
with growing belief that capital values have already peaked
In the absence of any major upcoming supply over the next
and likely to witness correction, resulted in investors and
12 months, drop in rental values for CBD and Off CBD
end-users adopting a wait and watch, approach thereby
locations is expected to be marginal. However planned large
bringing a slowdown in Mumbai residential sector.
scale redevelopment of mill land for commercial use at Lower
Parel coupled with reducing demand is likely to result in Developers also restricted the launch of new projects in 2008
significant correction in rental values. due to low pre commitments by investors and restrained
demand from end users for under construction projects. With
About 50% of anticipated supply in 2009 is expected to be
limited opportunities for development in south and south
concentrated in suburban markets of Andheri, Malad and
central Mumbai, most of the new supply was concentrated in
Bandra which includes IT/ITeS specific supply of approximately
suburban locations of far north Mumbai (Andheri, Goregaon
2 million sq.ft. This large upcoming supply coupled with
and Malad). However central Mumbai (Worli and Lower Parel)
existing high vacancies is expected to keep rental values
and North Mumbai (Bandra, Santacruz and Juhu) witnessed
under pressure.
sporadic supply of premium projects.
Micro markets of Thane and Thane Belapur Road are
Recent policy reforms such as repealing of the Urban Land
expected to witness a supply of about 6 million sq.ft. in 2009,
Ceiling Act, increase in Floor Space Index (FSI) for townships
nearly 55% of which is likely to be IT/ITeS specific. In spite of
and allowing upto 100% FDI for township development
the state government's recent resolution to allow financial
enticed township developments in peripheral locations of the
service providers to occupy up to 80% of space in an IT Park,
city. As a result Mumbai witnessed launch of two township
the large IT/ITeS specific supply coupled with reduced demand
projects in peripheral locations of Panvel and Thane in 2008.
from IT/ITeS sector is likely to create a supply to demand
mismatch keeping rental values under pressure in these Capital Values
markets.
Almost a complete absence of investors, increasing interest
Rental Cycle rates on home loans and anticipation of correction in the
Rental
existing high capital values led to restrained demand in second
Peak half of 2008. As a result capital values in the city which had
witnessed accelerated growth over the last 4-5 years stabilised
Market Market 4Q 2008 by 3Q 2008 and softened by the end of the year 2008.
Slowing Recession
Weakening
As compared to 2007, capital values witnessed mixed
Strengthening
Market Market response across various micro markets in 2008. While demand
for high end projects remained buoyant, consistent increase in
Market Market
Recovery Bottoming home loan interest rates resulted in drop in affordability for
end-users for mid end projects.
Rental Average Residential Capital Values - High End1
Trough 4Q 2009 (F2)
70,000 0
Source: Cushman & Wakefield Research
60,000 -2
Capital Values (INR/sq.ft.)
-4
With STPI benefits stated to end in 2009, the limited IT/ITeS 50,000
-6
specific demand is expected to be steered towards the 40,000 -8
upcoming SEZ space along the Thane Belapur Road on 30,000 -10
account of lower rentals and prevailing tax benefits in SEZs 20,000
-12
-14
space. With limited availability of SEZ space in the city, SEZ 10,000
-16
rentals in Thane Belapur Road are expected to remain stable.
0 -18
Central
South
South
Central
North
Far North
North East
8
MUMBAI MARKET OUTLOOK
2 2
Average Residential Capital Values - Mid End Average Residential Rental Values - Mid End
50,000 0 450,000 0
45,000 -2 400,000
40,000
Central
South
South
Central
North
Far North
South
South
Central
North
Far North
North East
North East
Low High Annual Growth Rate (%) Low High Annual Growth Rate (%)
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
On account of limited fresh supply and buoyant demand, south Mumbai due to low rentals and accessibility to
south and south central Mumbai remained largely insulated commercial hubs like Bandra Kurla Complex, Andheri and
from slowdown in residential sector and witnessed marginal Malad, south and south central Mumbai witnessed significant
softening in capital values for both high and mid end segment. correction in rental values of high end apartments.
However price sensitive markets of far north (Andheri,
However mid range properties in south and south central
Goregaon and Malad) and north east (Powai) witnessed
Mumbai which witnessed marginal correction due to limited
significant softening in capital values for both mid end and high
availabilities. The highest rental correction was recorded in
projects (-11% to -17%) due to large supply and restrained
mid range properties across price sensitive locations like far
demand from end-users due to reduced affordability and
north and north east Mumbai which witnessed 21-24% drop in
anticipation of further price correction. Lower demand for
rentals due to drop in affordability.
under construction projects resulted in steep correction in
capital values for both high end (-12%) and mid end projects Outlook
(-18%) in central Mumbai.
Increasing preference is likely to be given to smaller units and
Rental Values lower cost housing projects for middle income groups,
especially in price sensitive markets. As a result developers in
Rental values which had remained stable in first half of 2008,
far northern locations (Andheri, Goregaon and Malad) are
witnessed significant correction across all micro markets due
likely to focus on small sized apartments (1-2 BHK3
to overall restrained demand and realignment of rental
apartments) catering to middle income group.
expectation to market sentiments by property owners who
had earlier held on to their rental expectations in anticipation With Supreme Court allowing redevelopment of over 19,000
of growing demand from end users. buildings across Mumbai, south and south central Mumbai
could witness the launch of a few new mid and high range
Significant softening of rental values were recorded for both
projects in second half of 2009. This could lead to softening of
high and mid range properties. With multinationals showing
capital values in these markets which have so far remained
increasing preference for north and far north Mumbai over
insulated from correction due to limited supply and still
1
buoyant demand.
Average Residential Rental Values - High End
1,200,000 0%
In 2009, as most developers are likely to focus on reducing
-2% existing inventory, capital values for both high and mid end are
1,000,000
likely to remain under pressure over the next 10 to 12
Rental Value (INR/month)
-4%
-6%
800,000 months across most micro markets.
-8%
600,000 -10%
-12%
400,000
-14%
-16%
200,000 Key to the Residential Locations:
-18%
South: Colaba, Cuffe Parade, Nariman Point, Churchgate
0 -20%
South Central: Altamount Rd., Carmichael Rd., Malabar Hill, Napeansea Rd., Breach
Central
South
South
Central
North
Far North
North East
1 Average high end values are for properties ranging from 3,000 to 6,000 sq.ft.
2 Average mid end values are for properties ranging from 1,400 to 2,200 sq.ft.
3 BHK - Bedroom, Hall & Kitchen
9
MUMBAI MARKET OUTLOOK
RETAIL Average Mall Rental Trend1
800
With several brands undergoing an expansion spree, Mumbai
3.5
2.5
Goregaon, which recorded accelerated growth in rental values
2
in the beginning of 2008 due to favorable demand supply
1.5 scenario, experienced a slowdown in demand due to concerns
1 about non-viability of business at such high rental values
0.5 resulting in a steep correction of about 17% in the second half
0 of 2008. However consistent business performance by most
2006 2007 2008 2009 (F) 2010 (F)
Year brands resulted in Malad witnessing a year-on-year
Source: Cushman & Wakefield Research appreciation of 17% in 2008. Vacancy levels in Malad and
Goregaon were recorded at 3-5% in 2008.
Accelerated residential developments in peripheral locations
resulted in increasing demand for retail space in certain Main Street Development
markets. As a result majority of mall supply in 2008 was
Main street rental values which had recorded a steep increase
concentrated in peripheral locations like Vashi (770,000 sq.ft.), in the beginning of 2008, witnessed a correction in second half
Kharghar (250,000 sq.ft.) and Kalyan (104,000 sq.ft.). While of 2008 as a direct result of reduced leasing activities and
suburban location of Goregaon witnessed opening of Oberoi cautious expansion plan by many retailers.
Mall (400,000 sq.ft.), Grand Galleria (150,000 sq.ft.) became
operational at Highstreet Phoenix in Lower Parel. Mall During 4Q 2007 to 1Q 2008, main streets of south Mumbai
developments were also recorded in suburban locations of (Colaba Causeway and Fort/ Fountain) witnessed significant
Andheri. appreciation in rental values as a result of accelerated
expansion plans by various brands. However most brands
Mall rental values which reached a record high in first half of curtailed their expansion plans in second half of 2008 in
2008 witnessed a decisive drop by the end of 2008 across response to the economic slowdown resulting in subdued
most micro markets, barring a few. leasing activity in these main streets. The restrained demand
has strengthened tenant's position and resulted in significant
1 Average rentals are for ground floor premises on carpet area. correction of rental values in these markets.
10
MUMBAI MARKET OUTLOOK
Linking Road witnessed more leasing transaction as compared Outlook
to other high streets. Retail chains like Croma, Manzoni,
Increasing residential development and availability of land
Woodland, etc opened their stores here. Rental values which
parcels to develop malls in the peripheral locations will create
reached record high in first half of 2008 plunged thereafter by
new shopping and entertainment centres in the city. In 2009,
approximately 40% due to overriding market sentiments
Mumbai is expected to witness a total mall supply of
resulting in realignment of rental expectations to market
approximately 5.44 million sq.ft. including 2.17 million sq.ft. of
sentiments and business viability.
deferred supply from 2008 and 3.27 million sq.ft. of fresh
Average Main Street Rental Trend supply for 2009. Significant part of the upcoming supply will be
1600 concentrated in peripheral locations. The upcoming supply
Rental Values (INR/sq.ft./month)
600
The current economic slump has adversely impacted
400
consumer demand forcing many retailers to re-evaluate their
200
expansion plans. As the slowdown in the economy in
0
expected to continue in near future, mall rental values could
1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08 witness a further correction in first half of 2009 on account of
Linking Road Kemps Corner/Breach Candy high vacancies, large upcoming supply and low demand.
Colaba Causeway Lokhandwala Andheri
Fort/Fountain Restrained leasing activities is likely to keep the main street
Source: Cushman & Wakefield Research rental values in 2009 under pressure.
Rental values at Lokhandwala-Andheri and Kemps
Note :
Corner/ Breach Candy largely remained stable on account
l The rental values indicated are base rents and do not include interest cost of
of low vacancy levels and buoyant demand in these security deposit, maintenance charges and other such outgoings.
markets. l Average rentals are for ground floor premises on carpet area
11
NCR MARKET OUTLOOK
Bhagat
Singh Park
Libaspur Roop Nagar
St. Nagar
Jahangirpuri Raj Nagar
Rohini
Shalimar Majlis Karawal
Inder Enclave Bagh Park Nagar Amar
Pitampura GHAZIABAD
Colony
Prem Nagar Mangolpuri
Shakurpur
Ashok Vihar
NH 10 Prem Nagar II Colony Dilshad Garden
Paschim Vihar
NH 10 Shahdara
Daya Basti
Rajouri Sahibabad
Garden Kirti Nagar Dharam Rajgarh Industrial Area
Pura Colony
Vishnu Garden
Vikaspuri Old Rajender Nagar Nirman
Mohan Vihar
Garden Hari Nagar Karol Bagh
Janak Puri NEW DELHI Yamuna
River Mayur Vihar
Najafgarh Connaught Place Mayur Vihar
Uttam Nagar Khan Golf
Sector - 16B Sagarpur Phase I
Market Link
NH 8
Shanti NOIDA
Dwarka NH 2
Niketan South Friends
R.K. Puram Lajpat
Sector 23 Palam Ext. Anand Colony
Nagar
Niti Lok Aghapur
Nangal Safdarganj Bagh Nehru Jasola Vihar
Dewat Development GK-1
Mahiapalpur Place
Area GK-11 Okhla Hazipur
Saket Village
Vasant Kunj
Rajokri Vishwakarma
Udyog Vihar Khanpur Colony
Sangam Vihar
Pulpehladpur
Sector 5
DLF Industrial
GURGAON Sushant Lok Area
Sector 9 DLF Green Fields
Phase 5 Colony
Sector 10B Sector 39
Sector 34 Dera Spring Field Colony
Sector 35 Sector 19
NH 8 Sector 16
3% 6% 11%
9% 3%
10%
34%
57%
67%
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
12
NCR MARKET OUTLOOK
Supply, Absorption and Vacancy Trends price points achieved during previous years. Other locations
such as SCBD2, Gurgaon and Noida started to witness
16 25
correction since the third quarter of the year. These
14
20 locations recorded a correction of 11% in the last quarter
12
primarily due to economic conditions in addition to new
Area (million sq.ft.)
200
Source: Cushman & Wakefield Research
150
0
million sq.ft of space pre-committed during the year on supply
1Q - 04
2Q - 04
3Q - 04
4Q - 04
1Q - 03
2Q - 03
3Q - 03
4Q - 03
1Q - 06
2Q - 06
3Q - 06
4Q - 06
1Q - 07
2Q - 07
3Q - 07
4Q - 07
1Q - 08
2Q - 08
3Q - 08
4Q - 08
1Q - 05
2Q - 05
3Q - 05
4Q - 05
likely to enter in 2009. The demand was primarily driven by
IT/ITeS sector which accounted for nearly 67% of the total CBD Off CBD SCBD
South Micro Gurgaon - Commercial Gurgaon (IT/SEZ)
absorption. In addition, IT/ITeS developments witnessed Noida - Commercial
1
Noida (IT/SEZ)
1
majority (97%) of the pre-commitments likely to be absorbed Source: Cushman & Wakefield Research
in 2009.
Outlook
The increase in supply and weakening business sentiment led
to increase in vacancy levels in the region, which is currently The demand is likely to decline in wake of slowdown in
in the range of 8-10%. The vacancy level in Gurgaon and economic growth and deferred expansion plans of the
Noida stood in the range of 7-9% and 16-17% respectively at corporate. Office supply anticipated in 2009 is approximately
the end of the year. However, vacancy rate in CBD and Off 18 million sq.ft. which is likely to further correct rentals. As
CBD locations remained stable in range of 3-4% due to quick majority (72%) of the upcoming supply caters to the IT/ITeS
take up of space. segment with SEZ development of approximately 7 million
sq.ft. in the suburban locations, this segment is likely to foresee
Average Rental Values - Office Districts3
further correction.
400 20
Rental Values (INR/sq.ft./month)
250 5
strategy leading to reduced demand. The corporate occupiers
200 0
will now look to re-negotiate leasing terms and
150 -5
rentals with the developers or consider re-location to
100 -10
50
more cost effective locations, now readily available due to
-15
-20
increase in availability in certain suburban micro markets.
0
1
1
CBD
Off CBD
SCBD
(Commercial)
(IT/ SEZ)
Micro Market
Gurgaon
(IT/SEZ)
(Commercial)
Noida
Gurgaon
South
Rental Cycle
Noida
Rental 4Q 2008
Peak
Dec 2007 Dec 2008 Growth Rate (%)
Market Market
The year witnessed the rental values (except IT/SEZ segment) Slowing Recession
exhibiting an upward trend in the first half of the year before Weakening
Strengthening
Market Market
declining in the last two quarters owing to the exogenous
factors adversely affecting the economy and trickling down to
Market Market
the real estate sector. The rental values of the IT/SEZ segment, Recovery Bottoming
13
NCR MARKET OUTLOOK
It is anticipated that the flexible leasing terms will continue in and under construction projects with the latter depicting
the long term highlighting the shift from the landlords market relatively higher correction.
to the tenants market with the bargaining strength with the
Average Residential Capital Values - Mid End2
latter.
25,000 15
RESIDENTIAL
South
Central
Gurgaon
Noida
South East
demand by offering incentives such as free parking, deferment
of payment of EMI till possession and customising payment
Low High Annual Growth Rate (%)
scheme for projects nearing completion.
Source: Cushman & Wakefield Research
The credit crisis made the developers conscious of the offer
The Delhi locations recorded a decline in values in the range
price/launch price of new project launches reflecting a
of 10-12% in the last quarter over the previous quarter.
relatively higher correction than in prices of ready to move in
However, the values in most of these locations increased in
properties. The residential development for the mid income
the range of 4-12% over the year. These micromarkets
group gained prominence as this segment was unaddressed
witnessed appreciation in values up till the first half of the year
and contained huge demand. A few projects such as Wish
as the demand was driven by consulates and high commissions.
Town Klassic, Park Serene and DLF Express Greens to name a
However, thereafter the decline in the last quarter was not
few catering to mid income group were launched in the
steep to pull values from the level prevailing in the beginning
suburban locations of Gurgaon and Noida, despite the
of the year, although the demand weakened. The high end
slowdown.
segment of Gurgaon noted highest appreciation of capital
Capital Values value over the year owing to demand from senior
management/top executives.
The capital values witnessed appreciation until the first half of
the year in both the high end and the mid end segment. Rental Values
However, correction was noted in the last quarter of the year Similar trend was noted with rental values appreciating in the
in the range of 7-18% over the previous quarter in all micro first half of the year and witnessing marginal correction in the
markets. This decline in values across majority of the micro
Average Residential Rental Values - High End1
markets was not steep and it still held up to the level
prevailing in the beginning of the year. However, values in high 400,000 20
Rental Values (INR/month)
350,000
150,000
6 0
40,000 100,000
4
-5
50,000
30,000 2
0 0 -10
Central
South
Central
Gurgaon
Noida
South West
South East
20,000
-2
10,000
-4
0 -6 Low High Annual Growth Rate (%)
Central
South
Central
Gurgaon
Noida
South West
South East
14
NCR MARKET OUTLOOK
range of 2-9% in the last quarter vis-à-vis the previous Mall Supply Trend
quarter. This is owing to companies and individuals adopting a
7.00
cautious approach in leasing a property due to availability of
diverse options. The values across Delhi locations appreciated 6.00
in the range of 4-11% over the year except high end segment
1
Average Residential Rental Values - Mid End 1.00
180,000 25 0.00
160,000 2006 2007 2008 2009 (F) 2010 (F)
Year
Rental Values (INR/month)
20
Gurgaon
Noida
South East
400
Outlook
300
medium term due to subdued demand from the end users. 100
The launch of new projects and slowdown in demand is likely 0
to compel the developer to soften prices in the suburban Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08
1400
The supply was evenly spread across locations of South Delhi, 1200
Greater Noida and Faridabad, each of which witnessed new 1000
mall development of approximately 1.0 million sq.ft. 800
representing 64% of the total mall supply. Locations of West 600
Delhi, Gurgaon and Ghaziabad accounted for the remaining 400
supply of 1.6 million sq.ft. during the year. 200
0
Additionally, malls comprising 1.4 million sq.ft. completed 1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08
1 Average mid end values are for properties ranging from 1,600 to 2,000 sq.ft. Source: Cushman & Wakefield Research
15
NCR MARKET OUTLOOK
slowdown. Several developers are also contemplating to lifestyle retailers who were keen to establish their presence.
convert existing or planned retail developments to However, leasing activity remained subdued in the second half
commercial office space in order to cope up with the tough due to worsening economic conditions and cautious
economic conditions. expansion strategy of followed by various brands.
The last quarter of the year noted dip in rental values in the The rental values were holding up to previous years level up
range of 12-27% over the previous year. West Delhi locations till the third quarter, thereafter the values began witnessing
saw maximum correction of 27% over the last year due to correction across all micromarkets in NCR, with maximum
high vacancy in the existing development of north-west Delhi decline of 16% noted in prominent main streets of Connaught
in addition to the anticipated supply in 2009. Whereas, rental Place (Inner Circle), Karol Bagh and Basant Lok compared to
values in South Delhi micromarket witnessed relatively lower the previous year. These retail markets had achieved high price
correction of 12% over the year due the nature of points during last couple of years which seemed unsustainable
developments and lower vacancy levels. in prevailing economic scenario forcing a correction.
Mall vacancy levels across NCR increased marginally (1%) in Outlook
the last quarter of the year vis-à-vis the previous quarter. At
Low conversions and reduced demand is likely to put pressure
the end of the year, vacancy level stood at 24% owing to
on the rental values across both malls and main street
increase in available space in Delhi and Gurgaon. This has
locations in the medium term. The anticipated mall supply of
resulted in the deferment of several mall developments
6.3 million sq.ft. in 2009, with majority of it in South Delhi and
amounting to 2.4 million sq.ft. to 2009.
Gurgaon will further lead to correction in these
Main Street Development micromarkets. In the immediate future, the retailers are
expected to consolidate their operations focussing mainly on
The leasing activity across various Main Streets was active up
more viable outlets. Certain landlords/developers have
till the second quarter of the year and increase in rental
depicted flexible approach to lease agreement in order to hold
values was recorded. Many existing shopkeepers capitalised
on the demand. This is likely to continue in the long run amidst
on the upturn of the sector and provided opportunity to the
weakening business sentiment.
Note :
l The rental values indicated are base rents and do not include interest cost of security deposit, maintenance charges and other such outgoings.
l Average rentals are for ground floor premises on carpet area
16
BANGALORE MARKET OUTLOOK
1%1%
49% 5%
51%
88%
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
17
BANGALORE MARKET OUTLOOK
firms have started to base their leasing activities on short- With total office space absorption of nearly 10.36 million sq.ft.
term outlook rather than on long term expansion plans. in 2008, Bangalore witnessed the highest space take up in the
While demand for soft options is disappearing, need-based country. This can largely be attributed to the pre-
leasing of IT space is gradually gaining ground. In this climate commitments of previous years that were delivered in 2008,
of reduced visibility in space demand, SEZs in the city have accounting for nearly 62% of the total absorption for the year.
also been affected. Similar to the supply trend for the year, ORR, a key peripheral
micro-market, witnessed about 5 million sq.ft. of absorption,
Massive multi-product SEZs requiring huge investments have
followed by Whitefield (2.65 million sq.ft.). Despite the IT
been the worst affected in this economic meltdown; but even
slowdown, major office space demand drivers for the city
Bangalore, which mostly accounts for small sector-specific
continued to be the IT/ ITeS sector, followed distantly by other
(notified) SEZs, have been affected to some extent. Some IT
sectors like Telecom, Automotive and Biotech etc.
SEZs planned along the ORR and Whitefield micro-markets
have already seen slowdown in their phased developments, Average Rental Values Trend - Office Districts1
with much of the project construction having been deferred 90
50
The demand for commercial office space in Bangalore stood 40
1Q - 04
2Q - 04
3Q - 04
4Q - 04
1Q - 03
2Q - 03
3Q - 03
4Q - 03
1Q - 06
2Q - 06
3Q - 06
4Q - 06
1Q - 07
2Q - 07
3Q - 07
4Q - 07
1Q - 08
2Q - 08
3Q - 08
4Q - 08
1Q - 05
2Q - 05
3Q - 05
4Q - 05
registered this year in comparison to 2007 and 2006. Nearly
CBD
1.62 million sq.ft. of space pre-committed to in 2008 is set to Off CBD
Suburban - Koramangala / Indiranagar Peripheral - ITPL
get delivered in 2009, while another 845,750 sq.ft. will reach Peripheral - Whitefield, Electronic City, Hebbal Peripheral - ORR (Sarjapur - Hebbal)
completion by 2010. Another demand trend saw some firms Source: Cushman & Wakefield Research
backing out of initial commitments, while others reduced the
The vacancy rate in Bangalore increased significantly in the
built-up-area committed to in earlier quarters/ years.
fourth quarter, reaching 16% as against a range of 7-10% in
Supply, Absorption and Vacancy Trends earlier quarters. This was mainly because of the high vacant
18 18
stock in the Whitefield and ORR micro-markets. Peripheral
16 16 micro-markets (especially Whitefield) witnessed vacancy rates
14 14 in excess of 30% largely because of a continuing over-supply
Vacancy Rate (%)
Area (million sq.ft.)
80
25
70 Outlook
Growth Rate (%)
60
20
50 There is approximately 14 million sq.ft. of commercial office
50 15
supply expected in 2009 with a likelihood of 6 million sq.ft.
40
30
10 that is currently expected by 4Q 2009 to spill over to 2010.
20
5 The wait-and-watch approach adopted by corporates is
10
expected to result in a further decrease in office space
0 0
Suburban
Peripheral
Peripheral
Whitefield /
Electronics
ORR
CBD
ITPL
City
18
BANGALORE MARKET OUTLOOK
micro markets. However, developers active in peripheral of 2008. The only exception to this case was the mid-range
locations are expected to be more flexible towards other micro-market of Whitefield and Marathahalli, which continued
lease terms such as rent free periods, escalation rates etc. to witness minor rental corrections since the beginning of the
Bangalore's office market has been predominantly driven by year. This was essentially due to the oversupply of large
IT/ ITeS with the sector being the major office space occupier residential developments from prominent as well as lesser-
over the past 4-5 years. However, following the trends of 2008 know developers in these areas.
as mentioned above, the Telecom, Automotive and Biotech 1
Average Residential Rental Values - High End
sectors are likely to be more active in office space leasing in
600,000 1
2009.
Rental 4Q 2008
-2
Peak
200,000 -3
4Q 2009 (F)
-4
Market Market
Slowing Recession
0 -5
Koramangala,
Outer Ring Rd
Whitefield
(Villas)
Frazer Town
Benson Town
Richards Town
Dollars Colony
Lavelle Rd
Off Palace Rd
Off Cunnigham Rd
Ulsoor Rd
Richmond Rd
Sadhashivnagar
Hebbal
Yelahanka
Jakkur
Strengthening Weakening
Market Market
Market Market
Recovery Bottoming Low High Annual Growth Rate (%)
120,000 0
60,000
There has been a progressive demand slowdown in -15
40,000 -20
Bangalore's residential market over the last year with
20,000 -25
successive rises in interest rates since end-2007, that led to
0 -30
home loans becoming increasingly unaffordable for the
Brunton Rd
Artillery Rd
Ali Askar Rd
Marathalli
Whitefield
Airport Rd
Koramangala
Jakasandra
Cox Town
Frazer Town
Banaswadi
HRBR
Sarjapur Rd
Outer Ring Rd
HSR Layout
Jayanagar, JP
Hebbal
Bellary Rd
Yelahanka
Dodballapur
Nagar, Kanakpura
Rd, Kanakpura Rd
Vasanth Nagar
Richmond Town
Indiranagar
Malleshwaram
Rajajinagar
common man. In a bid to encourage sagging consumer
confidence, private and nationalised banks lowered home loan
rates during the last few months of 2008, although the decline
Low High Annual Growth Rate (%)
was marginal and the impact limited.
Source: Cushman & Wakefield Research
This slump led to an alternative option for end-users to
purchase property from the secondary market, where By 4Q 2008, the mid-range segment finally witnessed an
investors had begun to increasingly take the distress sale average drop by 10% across all micro-markets, except off
route by mid-2008. A few of the city's quality projects from central locations which remained stable. The maximum rental
reputed developers also saw distress sales in the range of 10- depreciation took place in the micro-markets of Whitefield
15% discounted rates in the secondary market.This primary and Marathalli (east), which saw a continuation of their earlier
market fall in sales led a few developers to even resort to correctional trend. These particular micro-markets were
freebies and early bird discounts, offering anything from free understandably hit the hardest at a time when the market in
cars and free fit-outs to parking space discounts and pre-EMI general began to bottom out.
cost-bearing facilities in a bid to push sales.
With sufficient choice available to end users coupled with
While the demand slowdown from end-users and investors subdued demand, tenants in the city seem to have gained an
continued, especially in the sale/ purchase of residential units, edge over landlords with regard to negotiations.
the added pressure from the secondary market finally forced
Capital Values
primary market values to start declining in the fourth quarter
of 2008. By end-2008 even the secondary market sale Capital values for both high-end and mid-range properties
volumes became limited, greatly impacting the city's residential across the city remained stable on an average till 3Q 2008. It
market. was not till 4Q 2008 that a select few developers in the city
began to announce price cuts ranging from a 10% cut across
Rental Values
all properties to an average 30% dip for premium projects
Rental values for both high-end and mid-range properties alone.
across most micro-markets in the city remained stable till 3Q
1 Average high end values are for properties in the range of 3,000 - 5,000 sq.ft.
2008, before the correctional trend began in the last quarter 2 Average mid end values are for properties in the range of 1,700 - 2,500 sq.ft.
19
BANGALORE MARKET OUTLOOK
Towards the last quarter of 2008, residential capital values to be ready by 2010-11. The Kanakpura Road stretch is also
saw an average drop of 10% across both high-end and likely to see approximately 7,000-8,000 residential units by the
mid-range properties in most micro-markets. As discussed same time period. Hosur Road and Electronics City are other
earlier, the only micro-market to witness corrections areas that are also likely to see some fresh residential supply
throughout the year was Whitefield and Marathahalli. The mid- in the next couple of years.
range south east micro-market of Sarjapur Road, Outer Ring
The current economic scenario has changed the outlook for
Road and HSR Layout also saw significant depreciation in
investment options in this sector in Bangalore. The market is
capital values over last year. This was primarily because quite a
expected to witness further price weakening in the mid-term,
few projects on Sarjapur Road witnessed a 19-20% dip in the
till market conditions and consumer confidence improve. At
secondary market over end-2007, forcing primary values to
present the market is suited for long-term investors; more so
come down too.
for end-users rather than for investors looking at short-term
Average Residential Capital Values - Mid End2 capital gains.
8,000 5
7,000
Affordable housing projects in the city are likely to gain
Capital Values (INR/sq.ft.)
0 -20
RETAIL
Brunton Rd
Artillery Rd
Ali Askar Rd
Marathalli
Whitefield
Airport Rd
Koramangala
Jakasandra
Hebbal
Bellary Rd
Yelahanka
Dodballapur
Jayanagar, JP
Nagar, Kanakpura,
Rd, Kanakpura Rd
Vasanth Nagar
Richmond Town
Indiranagar
Malleshwaram
Rajajinagar
-6
the market begins to recover and consumers return to
5,000 -8
stronger consumption patterns.
-10
0 -12
Mall Development
Lavelle Rd
Off Palace Rd
Off Cunnigham Rd
Ulsoor Rd
Richmond Rd
Sadhashivnagar
Whitefield
(Villas)
Frazer Town
Benson Town
Richards Town
Dollars Colony
Koramangala,
Outer Ring Rd
Hebbal
Yelahanka
Jakkur
in south Bangalore. There are quite a few residential Source: Cushman & Wakefield Research
developments planned along Bannerghatta Road and its 1 Average high end values are for properties ranging from 3,000 to 5,000 sq.ft.
surrounding areas, with approximately 4,000 units proposed 2 Average mid end values are for properties ranging from 1,700 to 2,500 sq.ft.
20
BANGALORE MARKET OUTLOOK
Average Mall Rental Trend 2008 were Reliance Mart, Spencer's Hyper and Croma.
600
Indiranagar 100 Feet Road, followed by Koramangala 80 Feet
Rental Values (INR/sq.ft./month)
500
Road, saw the maximum store launches in 4Q 2008. The last
400 quarter also saw the launch of Prestige Emporium (60,000
300
sq.ft) on MG Road, with fashion outlets of Stanza, Indigo
Nation, Provogue, Urbana, etc. More fashion and lifestyle
200
stores are expected to start operations here in 1Q 2009.
100
Average Main Street Rental Trend
0
400
1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08
International Airport (BIA) becoming operational in 2Q 2008, Koramangala - 80 Feet Rd Vittal Mallya Road New BEL Road
modern airport retailing also made an entry into the city this Source: Cushman & Wakefield Research
year.
While ground floor rentals of a few established main streets
But what needs to be noted is that nearly 1.5 million sq.ft. of experienced a marginal upswing in 1Q 2008, by 2Q 2008
supply was expected for the city in the beginning of the year rental values peaked, and the market witnessed resistance to
and only 23% was delivered. Limited supply addition helped to the lease of retail spaces at those values. By 2H 2008 another
keep the city's vacancy level to a low of about 3%. Of the trend saw a few retailers, who had already committed to space
proposed 2008 supply, about 1.14 million sq.ft. has been earlier in the year, beginning to re-negotiate on lease terms in
deferred, with nearly 82% of this staggered supply expected the light of the economic downturn.
to come up by the second half of 2009. The remaining has so
far been scheduled for completion by 2011. At present the In 4Q 2008 main street rentals saw an average rental
expected mall supply for 2009 is about 2.52 million sq.ft. over depreciation of approximately 15% across all micro-markets
approximately eight malls. over 4Q 2007, with Sampige Road, Malleshwarm (-28%), and
MG Road (-25%) witnessing the maximum fall in rentals. Main
The vacancy rate for the city's malls stood at about 3.12% by street rentals in the city are likely to continue dipping in the
year end, which marginally increased from 2.20% in 3Q 2008. mid-term.
This was largely because of the partially operational Total Mall
(Old Airport Road) coming up in 4Q 2008.Vacancy rates Outlook
were lowest in the CBD/off CBD, while the suburban area Since 2H 2008 most branded retail players in the city held
had the highest vacant stock by end-2008. The net retail new property deals at bay, because of the current economic
absorption for the last quarter of 2008 stood at 154,282 sq.ft. slowdown. As a fall-out rental corrections set in by end-2008.
In the absence of leasing volumes in existing and upcoming With bottom lines of retail businesses getting affected because
properties (together with the low turnover in existing malls of the comparatively conservative buying behaviour among the
since 2007), it has been difficult to establish a rental trend for city's shoppers over the previous year, in addition to peak
the year which appears to be stagnant. However it is rentals earlier in the year, retailers have understandably kept
anticipated that new transactions in the current retail market off fresh occupancy offers. This overall hesitant attitude is
scenario will more likely be at corrected rates. likely to continue into 2009, till the retail market recovers.
Main Street Development At present both mall and high street rentals in the city are
expected to continue depreciating in the mid-term. Such a
In line with last year's trend, the city's main streets remained correction might translate to a healthy sectoral growth in the
more active than its malls in 2008, albeit at a much slower long term as realty prices make more business sense for
pace during 2H 2008 in comparison to retail activities during retailers. Considering the unavailability of large spaces at
the same period in 2007. In the first quarter, Koramangala operational malls and the limited supply set to come in by
especially saw the launch of quite a few standalone large end-2009, high streets are likely to remain active in Bangalore.
format outlets, such as, Star Bazaar from Trent Ltd and the
Note :
Landmark Group's Oasis Centre, which houses SPAR
l The rental values indicated are base rents and do not include interest cost of
Hypermarket, Lifestyle, Home Centre and Max Retail among security deposit, maintenance charges and other such outgoings.
others. Other large format outlets to start operations in 1H l Average rentals are for ground floor premises on carpet area
21
PUNE MARKET OUTLOOK
Kasarwadi
Lohegaon
St Nagar
Wakad
Hinjewadi
Army Area
Sanghvi Adarsh
Rakshak
Society Dapodi Nagar
Tingre
Mula River
Rd
Khadki Nagar
t
or
Viman
rp
Khadki Phulenagar Nagar
Ai
Aundh Bazaar
Parvati r Rd
Baner Naga
Sindhi Kharadi
Range Hills
Colony Bombay Wadgaon
Kalyani
Ganesh Khind Rd Sappers Sheri
Nagar
Regiment
NCL
Ashok
Sus Gaun Colony
Nagar
SB Road Sangamvadi Cavalry
Bund Kavadewadi Line Sho
lapu
rR
d
Garden d
FC R
d
Koregaon
JM R
Ghorpuri
Park
Wadervadi PUNE
MG Rd
Bavdhan Magarpatta
Goklalenagar
City
Kothrud Navi Peth
Pune
Dattavadi Cantonment Wanowri
Parvati Hills Sasane Hadapsar
Hingne Nagar
Budrukh
Parvati Maharshi Wanwadi
Darshan Nagar
Vittalvadi
Warje
Malvadi
Balaji
Wadgaon Kondhwa
Nagar
Khadakwasla Budruk Khurd
Source: Cushman & Wakefield
89%
8%
Other IT & ITeS BFSI
Non IT IT SEZ IT Park Shipping Telecommunication
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
22
PUNE MARKET OUTLOOK
absorbed from pre-commitments from before 2008, serviced office spaces, Regus expanded its operations in
accounted for 3.02 million sq.ft. 1Q 2008 witnessed the Hadapsar in 3Q 2008.
highest absorption of 1.68 million sq.ft. mostly consisting of
1
pre-commitments from the previous years. 2Q 2008 Average Rental Values Trend - Office Districts
90
recorded absorption of 570,000 sq.ft. where as the absorption
80
1Q - 04
2Q - 04
3Q - 04
4Q - 04
1Q - 03
2Q - 03
3Q - 03
4Q - 03
1Q - 06
2Q - 06
3Q - 06
4Q - 06
1Q - 07
2Q - 07
3Q - 07
4Q - 07
1Q - 08
2Q - 08
3Q - 08
4Q - 08
1Q - 05
2Q - 05
3Q - 05
4Q - 05
Supply, Absorption and Vacancy Trends Camp/ Bund Garden Rd SB Road Airport Road
Aundh / Baner Kalyani Nagar and Nagar Rd Viman Nagar
10 18 Hadapsar / Kharadi Sholapur Rd Hinjewadi
9 16 Source: Cushman & Wakefield Research
8 14
Vacancy Rate (%)
7
12
6
10
2008 as compared to 8% the year before due to a
5
8
combination factors like excess supply and lower demand in a
4
6
slowing market. The peripheral micro markets witnessed
3
2
4 approximately 62% of the total supply during the year causing
1 2 it to also witness the highest vacancy of approximately 18-
0 0 20%. CBD and Off CBD locations witnessed vacancy in the
2001 2002 2003 2004 2005 2006 2007 2008
range of 10-15%, largely due to companies showing a
Supply Absorption Vacancy Rate (%) preference towards peripheral locations as they have lower
Source: Cushman & Wakefield Research rental values. The first three quarters witnessed constrained
vacancy rates ranging from 4-7% which significantly increased
Average Rental Values - Office Districts1
to approximately 16-20% in 4Q 2008.
80 20
Rental Values (INR/sq.ft./month)
SB Road
Airport Rd
Hinjewadi
Aundh/
Hadapsar /
Kalyani Nagar
Viman Nagar
Sholapur
Baner
Kharadi
Road
Nagar Rd
and
23
PUNE MARKET OUTLOOK
sector companies but is expected to remain subdued due to Average Residential Rental Values - Mid End
2
5000 -20
Strengthening Weakening
Market Market 0 -25
Aundh
Baner
Wanowri
Koregaon
Park
Bund
Garden
Kharadi
Wakad
Kalyani
Nagar
Market Market
Recovery Bottoming
Low High Annual Growth Rate (%)
Pune witnessed a mix of township developments as well as Rental values across both mid end and high end segment
standalone apartment projects during 2008. Due to limited remained stable till 3Q 2008 with an exception of micro
availability of land in the central locations, large scale supply markets such as Koregaon Park, Bund Garden Road, Kharadi
was primarily concentrated in the peripheral and suburban and Kalyani Nagar, which observed appreciation in both high
locations such as Hinjewadi, Hadapsar, Kharadi and Wakad. end and mid end rental values in the 3Q 2008 mainly due to
increased demand from multinational clients. However, in 4Q
With investors abstaining from the market it was essentially
2008 the rental values across most micro markets witnessed
an end users driven demand due to which Pune witnessed a
correction in both high and mid range properties. The global
slowdown in demand in 3Q 2008. Conservative approach
economic slowdown affecting the hiring decisions of IT/ITeS,
from end users and successive increase in interest rates as
BFSI and other sector companies led to slowdown in fresh
compared to 2007 led to slowdown in demand. However
uptake of mid end residential apartments. This, along with
during 4Q 2008, the city witnessed a drop in rental and
excess supply caused the mid end rental values to decline
capital values in response to slow demand. Owing to
across all micro markets in 4Q 2008. However limited
economic downturn and slowdown in IT/ITeS and other
availability of high end lease-able units in the central locations
service sectors, there was a definite erosion of job confidence
like Koregaon Park, Bund Garden Road, Kharadi and Kalyani
which directly impacted the end users who deferred their
Nagar led to stabilization of rental values in 4Q 2008.
purchase decisions. This also led to a negative demand supply
ratio with supply superseding demand. Various developers, in Capital Values
order to boost their sales, were compelled to revise pricing
Capital values for both high end and mid end segment
of their residential properties and promotional methods such
remained stable across majority of the micro markets till 3Q
as discounts and incentives. Credit crunch to developers and
2008. It was only in 4Q 2008 that the capital values began to
subdued end-user demand have resulted in delays in
construction of certain on going projects and postponement Average Residential Capital Values - High End1
of a few upcoming projects. Several on going projects have 12000 0
10000 -5
8000
300000 20
-10
Rental Values (INR/month)
6000
Annual Growth Rate (%)
250000
10
-15
4000
200000
0
2000 -20
150000
-10
100000 0 -25
Aundh
Wanowri
Koregaon
Park
Bund
Garden
Kharadi
Kalyani
Nagar
-20
50000
0 -30
Low High Annual Growth Rate (%)
Aundh
Wanowri
Koregaon
Park
Bund
Garden
Kharadi
Kalyani
Nagar
Low High Annual Growth Rate (%) 1 Average high end values are for properties ranging from 1,650 to 3,000 sq.ft.
Source: Cushman & Wakefield Research 2 Average mid end values are for properties ranging from 1,200 to 1,400 sq.ft.
24
PUNE MARKET OUTLOOK
0 -20 RETAIL
Aundh
Baner
Wanowri
Koregaon
Park
Bund
Garden
Kharadi
Wakad
Kalyani
Nagar
Leasing activity was concentrated more on the main streets
as compared to malls in 2008, with JM Road being the most
Low High Annual Growth Rate (%)
active of all main streets. Both malls and main streets rentals
Source: Cushman & Wakefield Research
witnessed correction during the second half of 2008 due to
decline. Due to excess supply entering the market, Wanowrie slowdown in demand resulting from cautious expansion plans
witnessed the highest year on year decline of 20% across high by retailers.
end residential segment followed by Kalyani Nagar (13%)
which attained high price points forcing it to undergo Mall Development
correction in the last quarter.
Pune witnessed fresh mall supply of 218,000 sq.ft. in 2008 as
In the mid end segment, Wakad recorded the highest decline against 850,000 sq.ft. last year with only one mall namely
of 15% over the year due to excess supply of projects under Kakade Centerport, commencing operations in 3Q 2008. The
construction. With no new mid end supply Kalyani Nagar mall has Westside and Odyssey as its anchor tenants and
witnessed stable rentals throughout the year. The only micro houses several brands such as Next, The Body Shop, Louis
market that witnessed a minor appreciation in mid end capital Philippe, Adidas, Reebok, Levi's and Giordano, among others.
values was Aundh which recorded a marginal increase of About 100,000 sq.ft. of anticipated supply for 2008 has been
about 3% in mid end capital values over the year. The boost to deferred and is likely to enter the market in 2Q 2009. The
this micro market was provided by the corresponding growth expected supply in 2009 therefore stands at approximately
of retail and commercial activities and improved connectivity 995,000 sq.ft. spread across 4 malls.
from various parts of the city that impacted the demand in
Mall Supply Trend
this location positively.
5
Outlook
4
The current economic condition will further lead to reduced
Area (million sq.ft.)
1 Average mid end values are for properties ranging from 1,200 to 1,400 sq.ft. Source: Cushman & Wakefield Research
25
PUNE MARKET OUTLOOK
The leasing activity on Ganeshkhind Road remained limited Wrangler,VIP, Adidas, United Colors of Benetton, X-cite, etc,
pushing the vacancy levels to approximately 13%. This opened their stores on this main street during the year.
resulted in a decline of approximately 14% in rental values
The main streets witnessed increased demand from retailers
over the year in Ganeshkhind Road. However, micro markets
in the beginning of 2008 due to lack of fresh mall supply as
such as MG Road, Bund Garden Road and Koregaon Park
well as limited availability of space in operational malls. This
registered year-on-year growth in rentals in the range of 7-9%
resulted in appreciation of rental values across all main streets
largely due to lack of fresh supply entering the market during
the year. in 1Q 2008. However, there was a slowdown in rental growth
in 2Q 2008 vis-à-vis 1Q 2008 and subsequently the rentals
Main Street Development declined in the second half of 2008. As a result of the
economic uncertainty, the retailers adopted cautious
The demand in 2008 was largely concentrated around the expansion strategies which resulted in a slowdown of demand
main streets of JM Road and Aundh. JM Road was the most for retail space during the second half of 2008, hence leading
active of all main streets with brands such as Reebok, Pepe to rental correction across most main streets. Overall, as
and Stanza marking their presence on JM Road and United against 2007, the rental values witnessed an appreciation
Colors of Benetton relocated to a larger store. Aundh has across most micro markets with JM Road witnessing the
also emerged as a preferred main street due to its proximity highest year-on-year appreciation to the
to residential hubs. Additionally limited availability of space tune of 48% followed by Aundh at 29%. MG Road was an
coupled with high rental values on established main streets exception witnessing correction of approximately 13% in
has boosted demand for Aundh. Several brands such as Lee, rental values over the year. The rental values on MG Road
reached its peak during the first half of 2008 pressuring store
Average Main Street Rental Trend
viabilities. Subsequently the rentals declined in the last two
500
quarters.
Rental Values (INR/sq.ft./month)
400
Outlook
300
Both malls and main street rental values are likely to weaken
200
in short to medium term due to restrained expansion plans
100
by retailers. The fresh mall supply that is expected to enter
the market in 2009 may further pressurize mall rentals. The
0 slowdown in demand is likely to lead to further weakening of
Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08
rental values in most main streets in short to medium term.
MG Road JM Road FC Road
Koregaon Park Aundh Bund Garden Road
However, main street of MG Road may witness stable rentals
due to higher demand and lack of available leasable space.
Source: Cushman & Wakefield Research
Note :
l The rental values indicated are base rents and do not include interest cost of security deposit, maintenance charges and other such outgoings.
l Average rentals are for ground floor premises on carpet area
26
CHENNAI MARKET OUTLOOK
Korattur Vyasarpadi Royapuram
Korattur Eri Villivakkam Perambur
Old
CHENNAI Washermanpet
Dairy Rd Man Rd
Ayanavaram
Nu Hi
KNK Rd Chintadripet
ng gh R
Koyambedu
am d
Maduraivoyal
Choolaimedu
ba
lai
kk
Vadapalani a Sa
Ann
am
Vanagaram Triplicane
NSK Salai
Valasaravakkam Usman Royapettah Marina
Arcot Rd Rd Poes Cathedral R Beach
d
Theyagaraya Garden RK Salai
Porur
Nagar Teynampet Mylapore
RA Puram Santhome
Mowlivakkam Jawaharlal
Beach
Nehru Rd Nandanam Boat Club
Palavakkam
Rajiv Gandhi
Pallikaranai Salai
14%
65%
54%
BFSI IT & ITeS Others
Commercial IT SEZ IT Parks Infrastructure Manufacturing
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
27
CHENNAI MARKET OUTLOOK
weakening of rentals especially in the CBD and off CBD areas in other suburban areas only in the 4Q mainly due to negative
with developers willing to close out on larger deals and market sentiments and economic uncertainty. IT/ ITeS, BFSI &
agreeing to tenant-favourable terms and lower rentals. Telecom sector continued to be the main demand drivers in
the suburban areas, although the year also saw the rise of
The main demand drivers were IT/ ITeS, BFSI, Logistics and
manufacturing corporations as space occupiers.
Telecom in the CBD and Off CBD regions. CBD witnessed
supply of 222,000 sq.ft. of which 54% (120,000 sq.ft.) was Vacancy sharply increased from 13-15% in 2Q across the city
absorbed during the year. Off CBD had the highest to approximately 18% at year end. This surge can be mainly
percentage absorption when compared with the supply that attributed to the speculative supply seen in the suburban
came in during the year. Areas such as T. Nagar, Chetpet and markets increasing the suburban vacancy rate from 6-8% in
R.A. Puram, witnessed the highest quantum of absorption 2Q to 18% at year end. Peripheral vacancy rates continued to
within the Off CBD region and continued to remain the remain above 40% although the deferment and slowdown in
preferred destination for corporates during the year. Off CBD supply resulted in arresting the already acute vacancy situation.
witnessed absorption of 150,000 sq.ft. for each quarter, During the year, peripheral regions saw supply of 2.2 million
except for 4Q when absorption dipped to 60,000 sq.ft. sq.ft. of which approximately 1 million sq.ft. was absorbed.
Although rentals dipped in September, 4Q saw a drop in space Rents stabilized in 2Q for the remainder of the year, although
absorption with an uncertain economic outlook resulting in the current falling rentals in suburban areas are now expected
postponed of expansion plans of various firms. to bring down rents further in the peripheral regions as well.
Supply, Absorption and Vacancy Trends Average Rental Values Trend - Office Districts1
90
Rental Values (INR/sq.ft./month)
12 25 80
70
10 20 60
Vacancy Rate (%)
Area (million sq.ft.)
8 50
15 40
6 30
10 20
4
10
5 0
2
1Q - 04
2Q - 04
3Q - 04
4Q - 04
1Q - 03
2Q - 03
3Q - 03
4Q - 03
1Q - 06
2Q - 06
3Q - 06
4Q - 06
1Q - 07
2Q - 07
3Q - 07
4Q - 07
1Q - 08
2Q - 08
3Q - 08
4Q - 08
1Q - 05
2Q - 05
3Q - 05
4Q - 05
0 0
2002 2003 2004 2005 2006 2007 2008 CBD-Anna Salai, RK Ralai (Corporate) CBD-Anna Salai, RK Ralai (IT Space)
Off CBD-T.Nagar, Alwarpet (Corporate) Off CBD-T.Nagar, Alwarpet (IT Space)
Suburban-Guindy Suburban-Ambattur
Supply Absorption Vacancy Rate (%)
Suburban-Perungudi-Taramani Peripheral-Rajiv Gandhi Salai
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
1
Average Rental Values - Office Districts Outlook
90 0%
80 The supply spill over of approximately 2.6 million sq.ft. from
Rental Values (INR/sq.ft./month)
-5%
70 2008 is likely to increase supply for 2009 projected at
Growth Rate (%)
60
-10% approximately 15.7 million sq.ft. of which approximately 7.3
50
40
million sq.ft. is accounted by SEZ. New SEZ projects and large
-15%
30 scale campus developments of companies are likely to be
20 -20% deferred owing to a sea change in the business environment of
10 companies that were previously in expansion mode. Whilst
0 -25%
demand is likely to be driven by the IT/ ITeS sector, companies
Suburban-
Perungudi,
Taramani
Peripheral-Rajiv
Gandhi Salai
Off CBD-T.Nagar,
Alwarpet
(Corporate)
Off CBD-T.Nagar,
Alwarpet
(IT-Space)
Suburban-
Guindy
CBD-Anna
Salai, RK Salai
(Corporate)
CBD-Anna
Salai, RK Salai
(IT Space)
Suburban
Ambattur
28
CHENNAI MARKET OUTLOOK
Rental Cycle half of the year. Thus, most micro markets witnessed double
Rental digit annual appreciation in capital values.
Peak
4Q 2008
The city witnessed growth during the year in two main
Market Market
corridors: in the south which includes areas such as
Slowing Recession Tambaram,Velachery, Rajiv Ghandi Salai and GST Road and in
Strengthening Weakening the west, the suburban markets of Mogappair, Porur,
Market Market
Virugambakkam and Nandambakkam. These markets
witnessed capital appreciation of 20-40% over last year in the
Market Market
Recovery Bottoming mid end segment with strong demand owing to the proximity
to work and infrastructural initiatives undertaken by the
Rental government in these areas. SINK's and DINK's (Single income
Trough 4Q 2009 (F)
no kids and double income no kids) showed preference
Source: Cushman & Wakefield Research towards residences closer to their workplace while families
with children took into consideration social infrastructure
developers; additionally spaces signed at premium rates in
such as schools & recreation centres thus preferring to limit
areas such as RK Salai, Nungammbakam High Road, MRC
their search to the suburban areas. On the Rajiv Ghandi Salai
Nagar and Guindy are likely to be renegotiated in the near
stretch, beyond Sholinganalur, the price movement was project
future.
specific rather than location specific. Additionally,
Areas such as Ambattur, which suffers from an oversupply of infrastructure initiatives like metro connectivity, construction
non SEZ - IT developments, will continue to witness of the Inner Ring Road (between GST road and NH4) etc.
weakening rentals and deter corporate space take up unless have brought additional demand to north-western regions of
the government and/or developers improve the infrastructure Anna Nagar and Mogappair.
in the vicinity. Certain IT Parks within the city limits are
expected to apply for conversion back to non-IT park status, Average Residential Capital Values - High End1
30,000 80
in light of the reduced IT demand and ambiguity over STPI tax
70
exemption. 25,000
Capital Values (INR/sq.ft.)
RESIDENTIAL 15,000 40
30
10,000
In Chennai, the demand for apartments has progressively 20
increased over the past few years as compared to the 5,000
10
traditional independent housing bias that used to be 0 0
Boat Club
R. A. Puram
Adyar
Poes Garden
Nungambakkam
Anna Nagar
Kilpauk
previously predominant. This is mainly attributable to the
investor population and rise in the number of nuclear families,
resulting in an increase in the sales for apartments and
residential townships announced. Low High Annual Growth Rate (%)
high demand for quality housing ensured the steady rise of 12,000 30
10,000 25
capital values ranging from 12-28% in these areas. 8,000 20
6,000 15
Nungambakkam did not witnesses any launch in the high end 4,000 10
market during the year of 2007 and the launch of Patio by 2,000 5
Vijaya Shanti during 2008 met the pent up demand in this area 0 0
R. A Puram
Adyar
Rajiv gandhi
Salai
(Perungudi)
Velachery
Poes Garden
T. Nagar
Nungambakkam
Anna Nagar
Kilpauk
29
CHENNAI MARKET OUTLOOK
Rental Values development rights. Additionally market dynamics will also
prompt developers to focus on the affordable category and
While the rental markets in the high end segment continued
thus focus on value housing thus providing stronger
to be buoyant during the first half of the year, it witnessed
infrastructure and less frills such as clubs, swimming pools etc.
stabilisation in the last quarter. The Tamil Nadu Electricity
This can be seen in some of the recent announcements by
Board (TNEB) announced load shedding in various parts of
developers to create projects along these lines.
the city, which resulted in properties, with 100% power back
up, commanding a hefty premium in rentals. Landlords in the The relaxation on costal regulation zone constructions is likely
high end rental market are increasingly providing the lessee to generate renewed interest by developers and investors
with the power back up option in order to command a higher along the East Cost Road. Rajiv Ghandi Salai is expected to
rental. continue to see weakening capital values due to large supply
entering the market in 2009, delays in existing projects causing
Average Residential Rental Values - High End1 investors to exit at a discounted value, weak social
300,000 60 infrastructure which in turn is likely to prompt more focus on
GST Road that boasts of a relatively stronger physical and
Rental Values (INR/month)
R.A. Puram
Adyar
Poes Garden
Nungambakkam
Anna Nagar
Kilpauk
RETAIL
Low High Annual Growth Rate (%)
Source: Cushman & Wakefield Research Chennai continues to witness a dearth of quality retail supply
across the city and the deferment of various malls added to
Average Residential Rental Values - Mid End2 the woes of high end retailers seeking to enter Chennai. The
60,000 100
city witnessed correction in retail rentals during the fourth
90 quarter as economic uncertainty led to a more conservative
Rental Values (INR/month)
50,000 80
70
attitude from both consumers and retailers alike.
40,000
60
30,000 50 Mall Development
40
20,000
30 The dry spell of 2007 continued in the first 3 quarters of 2008,
20
10,000
10 while in the last quarter Chennai witnessed a supply of 0.15
0 0 million sq.ft. with the long overdue Ampa Mall becoming
R. A. Puram
Adyar
Velachery
Nungambakkam
Rajiv Gandhi
Salai
(Perungudi)
Poes Garden
T. Nagar
Anna Nagar
Kilpauk
Outlook
The Chennai Master Plan 2026 is expected to provide the LIG
0.00
and EWS housing sector with the necessary fillip and is 2006 2007 2008 2009 (F) 2010 (F)
Chennai especially in the peripheral regions. Developers are Source: Cushman & Wakefield Research
30
CHENNAI MARKET OUTLOOK
250 200
200 150
150
100
100
50
50
0
0 1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08
1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08
Khadar Nawaz Khan Rd Anna Nagar 2nd Avenue Nungambakkam High Rd
Cathedral Rd - RK Salai Adyar Main Rd Purusavakam High Rd
Chennai - CBD (central) Chennai - Suburbs (western)
Usman Rd - South Khadar Nawaz Khan Rd
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
6.2 million sq ft.); however, it is anticipated that a majority of in order to gain first mover advantage and expand their
this mall supply will not be operational as per schedule since presence across the city. Demand for retail space relatively
several of these projects are yet to commence construction. decreased during the last quarter leading to lower number of
Malls in their initial stages of construction are actively seeking transactions causing the rentals to correct across all micro
to sign up with key anchors like Hyper markets, department markets.
store and multiplexes.
Outlook
During the start of the year, approvals were the main concern
Retailers are cautious about their financial commitments in
with most of the malls, although towards the latter half
any location, which in turn will prolong negotiations despite
apprehensions regarding liquidity and construction schedules
their interest in the city. Traditionally south has been working
became more apparent. Although mall rentals witnessed
on higher security deposits, but due to the increasing rentals
correction, the quantum of this drop was not comparable to
in previous years the deposit amount have become substantial
other cities that had recorded significant appreciation over
and this amount is expected to receive increased emphasis by
the years and hence had a larger scope for correction.
retailers during future negotiations.
Additionally due to the continuous deferment and limited
supply entering the market, mall rentals in Chennai witnessed Infrastructure developments announced during the year and
and are expected to continue witnessing a lower correction the new city master plan are changing the landscape of the city
in percentage terms as compared to other cities as well as as flyovers and MMRTS, metro is making retailers and
against most high streets within the city. Projects in the developers alike reconsider their positioning in the market, in
central and western regions of Chennai are being closely order to maximize footfalls and visibility.
watched by retailers - wanting to establish a footprint across
the city but are weary of the delays; these projects are Rentals across Chennai are expected to further correct from
expected to witness a surge in leasing as the mall nears their current levels across all micro markets. As retail space
completion.Various international brands looking at per person in Chennai is very low, the limited future supply
establishing a footprint in the city are considering options in will ensure the correction to not be as sharp as other cities.
the more mature markets and thus want to be located Emerging high streets such as Wallace Garden Road, Anna
centrally. Nagar 3rd Avenue are expected to witness sharper correction
as compared to established high streets like Nungambakkam
Main Street Development High Road, Cathedral Road - RK Salai, T. Nagar (pondy bazzar)
nd
and Anna Nagar 2 Avenue to name a few. Premium retailers
Due to the low mall supply, retailers maintained a bias would reconsider markets such as Khader Nawaz Khan Road
towards main streets and especially towards stand alone nd
in light of the correction while Anna Nagar 2 Avenue, T.
stores. Developments offering larger floor plates in Nagar, are expected to witness demand from lifestyle brands
established retail precincts continued to remain sought after due to the heavy footfalls and strong catchments of these
and this trend is expected to continue into the near future. markets. Rentals are expected to stabilize towards 2H 2009
New high end retailers continued to explore options in the with demand is likely to improve considerably from current
established markets of Khadar Nawaz Khan Road and levels as the falling rentals will enable retailers to set up
Nungambakkam High Road due to the presence of high end profitable stores.
catchments and large visibility. However, limited availability of
quality space caused them to refrain from signing up on space
during the year. Established regional retailers continued to Note :
l The rental values indicated are base rents and do not include interest cost of
expand their operations into new micro markets especially security deposit, maintenance charges and other such outgoings.
focusing on the peripheral micro market of Rajiv Ghandi Salai l Average rentals are for ground floor premises on carpet area
31
HYDERABAD MARKET OUTLOOK
Kukatpally NH9
University of
Marredpally
Hyderabad SR Nagar
Hitech City Malkajgiri
Madhapur
Begumpet
Gachibowli Ameerpet Sanjeevajah Nacharam
Yousufguda Park Industrial Area
Jubilee NTR
Garden Tarnaka
Mumbai Rd Hills
Somajiguda Hussain Himayat Padmarao
Banjara Sagar Nagar Nagar
Punjagutta Habsiguda
Hill
KBR Uppal
National Park Ram Nagar
Osmania
Shaikpet University
Army Area Masab Warangal Rd
Tank Nallakunta
Manikonda Mehdipatnam
Ramanthapur
Vijay Nagar Nagole Rd
Tolichowki Kachiguda
Colony Nampally Amberpet
Osman Sagar Rd Langar Abids
House Karwan HYDERABAD Uppal Kalan
Military Area
Malakpet Nagole
Rambagh Dilsukhnagar
Mrigavani Nehru
Zoological LB Nagar Rd
National Park Saidabad
Park Colony
Charminar
Chintalmet
Mir Alam Lal LB Nagar Mahavir Harini
Katedhan Tank Barwaza
Industrial Area NH 9 Vanasthali
Nawab Kanchan National Park
Saheb Kunta Bagh
Musa River Vanasthalipuram
Rajendra
Hymayat Sagar Rd Nagar
Premavathi Inner Ring Rd
Pet NH 7
Himayat
Sagar Budvel Gurram
Shamsabad
Guda
Hayat
Source: Cushman & Wakefield
79%
51%
BFSI IT & ITeS Others
IT Developments Non-IT IT SEZ Infrastructure Consulting
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
32
HYDERABAD MARKET OUTLOOK
(46%) of approximately 1.78 million sq.ft. due to delayed constituted approximately 1.33 million sq.ft. (inclusive of pre-
completion of projects. Shrinking liquidity with developers, committed absorption totaling 249,000 sq.ft.) and the balance
staggered consumer demand and increase in overall cost of constituted of fresh pre-commitments entirely in IT/ITeS
construction are the prominent factors responsible for delay developments which are likely to be absorbed in the first half
in project completion. of 2009. The suburban micro market accounted for 933,600
sq.ft. (70%) of the total absorption which was followed by the
Supply, Absorption and Vacancy Trends
peripheral micro market of Pocharam and Off CBD micro
5 20 markets each accounting nearly 11% of the total absorption.
18
4 16 CBD, Off CBD and Prime Suburban micro markets witnessed
Area (million sq.ft.)
60 20
range of 9-14% as against 3-4% during the first quarter of the
50 15
Growth Rate (%)
Suburban
Peripheral
Peripheral
CBD
Off CBD
Prime
Non-SEZ development.
2007 2008 Growth Rate (%)
Outlook
Source: Cushman & Wakefield Research
Fresh office space supply in 2009 is expected to be nearly 5
Average Rental Values Trend - Office Districts1
70
million sq.ft. inclusive of nearly 3 million sq.ft. of IT SEZ
developments, majority of which are scheduled for the first
Rental Value (INR/sq.ft./month)
60
half of the year. This additional supply is likely to further
50
increase the existing supply-demand gap resulting in
40
increasing vacancy.
30
1Q - 06
2Q - 06
3Q - 06
4Q - 06
1Q - 07
2Q - 07
3Q - 07
4Q - 07
1Q - 08
2Q - 08
3Q - 08
4Q - 08
1Q - 05
2Q - 05
3Q - 05
4Q - 05
Rental Cycle
CBD Off CBD Prime Suburban Rental 4Q 2008
Suburban Peripheral I Peripheral II Peak
33
HYDERABAD MARKET OUTLOOK
to 10 to 15%. Madhapur and Gachibowli will continue to etc. focused on affordable housing. National developers such
remain as preferred IT/ ITeS region over the other micro as DLF Homes and Bangalore based Mantri developers to
markets due to comparatively low occupancy cost and name a few announced launch of apartment projects in the
availability of Grade A supply. Rentals across all micro city but are yet to start construction activities.
markets inclusive of SEZ rentals are expected to see further
Capital Values
correction by first half of 2009, with stabilization likely in
select regions in the second half. Some of the pre- Average capital values for high-end properties witnessed
commitments as well already committed space may also get lesser impact despite the slump and overall decrease in
vacant with companies preferring just-in time deals rather residential demand. As of December 2008, annual appreciation
than holding large vacant spaces like they use to do earlier. in capital values was estimated between 9 to 20% barring
Himayathnagar and West and East Marredpally where
RESIDENTIAL average values declined by 3% and 5% respectively over the
previous year.
Established residential micro markets of Jubilee Hills, Banjara
Hills, Srinagar Colony, Somajiguda, Punjagutta, Himayathnagar, As the effect of slowdown was more pronounced during the
Begumpet, Marredpally and Sainikpuri etc. witnessed mid- second half of 2008, the changes in capital values during that
segment standalone apartment projects through the year time frame reflect the actual correction taking place in the
2008. However, limited land availability for new developments market. During June to December 2008, average values eased
within the city led to large scale developments taking place in between 7 to 11%. However, Banjara Hills and Jubilee Hills
suburban and peripheral regions of the city. Apart from being the prime residential locations did not succumb to any
scattered standalone apartment projects by local developers, negative correction during the second half of the year.
planned apartment projects were visible in Andhra Pradesh
Police Academy (APPA) Junction in south-west, Kukatpally in Average Residential Capital Values - High End1
8,000 25
north-west, Nagole, LB Nagar in east; Kondapur, Gachibowli
7,000
and Nallagandla in west and ECIL X Road in north-east to 20
Capital Values (INR/sq.ft.)
Jubliee
Hills
Begumpet
Somajiguda
Kukatpally
Himayatnagar
Madhapur
Gachibowli
Bachupally in north-west as well as Shamshabad, Kothur and
Sri Sailam Road in south of Hyderabad. However, currently
most of these regions lack adequate social infrastructure and Low High Annual Growth Rate (%)
therefore witnessed a sluggish response from end users. Source: Cushman & Wakefield Research
With the global economic meltdown dampening overall sales Average Residential Capital Values - Mid End2
prospects, several property developers in the city resorted to
4,500 10%
re-pricing of properties to boost sluggish sales and thereby 4,000 8%
expedite completion of projects with significant bookings by
Capital Values (INR/sq.ft.)
3,500
6%
customers.Various projects set for completion during the 3,000
2,500 4%
year were deferred as developers faced liquidity issues. In
2,000 2%
certain cases, developers even delayed the launch of new 1,500
0%
projects anticipating passive response from buyers. This is 1,000
-2%
primarily attributed to buyers shying away to make capital 500
Jubliee
Hills
Begumpet
Somajiguda
Kukatpally
Himayatnagar
Madhapur
Gachibowli
On the other end of the spectrum, developers such as Bharat Banjara Hills, Jubilee Hills and Himayathnagar registered
Infratech (Bharat Iconia), Lodha Developers (Lodha Bellezza), marginal decline in average capital values by nearly 2% to
Radha Realty (U 31) and Emaar-MGF (Boulder Hills) etc. stabilize at INR 3,800 and INR 2,800 per sq.ft. respectively.
announced launch of ultra luxury residential projects in the
second half of the year while a handful such as Janapriya 1 Average high end values are for properties ranging from 1,600 to 3,250 sq.ft.
Engineers Syndicate, Modi Properties and Manjeera Projects 2 Average mid end values are for properties ranging from 1,200 to 1,600 sq.ft.
34
HYDERABAD MARKET OUTLOOK
Average values in West & East Marredpally, Madhapur as well of 13% followed by Madhapur and Gachibowli each witnessing
as Gachibowli stabilized at last year's values. negative 2% correction.
Jubliee
Hills
Begumpet
Somajiguda
Kukatpally
Himayatnagar
Madhapur
Gachibowli
itself.
25,000 10%
Hills Road No.1 getting operational during first quarter of
20,000 5% 2008 added approximately 150,000 sq.ft. to the retail mall
15,000 0% stock. Mall rentals in Banjara Hills Road No.1 and
10,000 -5%
Himayathnagar witnessed downward correction by 20% and
4% respectively over the previous year as it reached high price
5,000 -10%
0 -15%
Mall Supply Trend
Banjara
Hills
Jubliee
Hills
Begumpet
Kukatpally
Somajiguda
Himayatnagar
Madhapur
Gachibowli
5.00
35
HYDERABAD MARKET OUTLOOK
Average Mall Rental Trend Somajiguda witnessed organized retail activities primarily from
250 apparel, lifestyle retail brands and consumer durables segment.
150
same timeframe Raj Bhavan Road, Somajiguda and Jubilee Hills
100
saw a slower rate of depreciation with a correction of 3-6%
due to non-availability of properties.
50
Luxury car makers like BMW, Audi,Volkswagen and Volvo etc.
0
Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08
established their presence along main streets of Raj Bhavan
Road, Banjara Hills and Jubilee Hills, while entry of
NTR Gardens Himayathnagar Banjara Hills, Rd No.1 international luxury brands was very minimal. Hypermarket
format stores such as Reliance Mart and SPAR getting
Source: Cushman & Wakefield Research operational during the second half of the year established
points not matching expectations. With the apparent softening consumer preference for such stores in Hyderabad.
of demand, mall supply witnessed a set back as two planned
Outlook
mall projects, one each in Himayathnagar and Banjara Hills
Road No.1 earlier scheduled to be operational by end of Hyderabad is set to witness planned mall development of
2008, were deferred to 2009. The latter witnessed pre-lease approximately 1.2 million sq.ft. in 2009 spread across three
commitments from leading international brands, mostly in the malls in Banjara Hills Road No.1, Himayathnagar and
apparel segment. Madhapur/ Hitec City.
Mall vacancy stagnated at approximately 5% by end of 2008 as Rentals across select malls and main streets are expected to
compared to nearly 18% during 1Q of 2008. Space availability witness further correction between 5 to 10% by first half of
in Ashoka Metropolitan Mall which was subsequently leased 2009 given their susceptibility to demand slowdown and
to various retailers led to the overall high vacancy during in additional retail space infusion.Various mall developers who
1Q of 08. anticipated project completion in the next two years may face
execution risk due to the liquidity crunch leading to further
Main Street Development delay in their schedules. Revenue sharing between mall
The city's retail market witnessed preference for main streets developers and tenants, although not yet a prominent trend in
due to better visibility for the brands coupled with minimal Hyderabad, may see the light of day in 2009. Existing tenants in
retail space in malls. Prominent main streets such as Jubilee main streets are in a better position to re-negotiate rentals
Hills Road No. 36, Banjara Hills Road No. 12, Begumpet and with landlords as demand remains low.
36
KOLKATA MARKET OUTLOOK
Liluah South
Paikpara
Dum Dum
Rajarhat
Shalkiya
Mail Ultadanga
Beniatola
Panchghara
Salt Lake
Narkeldanga
Shibpur Kankurgachi
KOLKATA
Bow Beleghata
Bazaar
Kulia
Hooghly Shalimar
River Par Tangra
kS
tree
t
Gobra
Garden
Reach Dhapa
Bhawanipur Topsia
Ballygunge
Mominpur Alipore Tiljala
Garfa Haltu
Behala
Tollygunge
Santoshpur
Royal Calcutta
Golf Club Bijoygarh
18%
61%
4%
31%
Automotive Others Telecommunication
IT Non-IT IT-SEZ IT/ITeS BFSI
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
37
KOLKATA MARKET OUTLOOK
city was witness to significant supply in the commercial space sq.ft. concentrated entirely in the peripheral locations.
segment in 2008. Salt Lake registered the highest commercial Rajarhat witnessed almost 84% of the pre-commitments
space supply at 343,000 sq.ft primarily on account of primarily due to higher quality of supply and considerably
substantial demand from corporates for high quality office lower rentals in comparison to other micro markets. The city
space in the location while CBD followed with supply at was witness to about 63% decline in absorption at 780,000
200,000 sq.ft in the segment. Supply fell short by over 50% sq.ft in 2008 as against 2007; attributable to the recessionary
than the projected supply of 4.2 million sq.ft in the beginning conditions of the economy as major corporate houses shelved
of 2008. This was primarily due to deferment of a number of their expansion plans during the last two quarters of the year.
significant projects in wake of global economic crisis Absorptions included 63,000 sq.ft of pre-commitment of
contracting the demand scenario in the city. earlier years.
The city recorded total demand of approximately 1.8 million IT/ITeS sector accounted for 62% of the total absorptions in
sq.ft during 2008 primarily driven by the IT/ITeS segment 2008. The first and last quarter of 2008 witnessed maximum
comprising of pre-commitments of approximately 1.09 million absorptions in the IT/ITeS segment. During 1Q 2008, almost
51% of the new supply delivered was absorbed; with Rajarhat
Supply, Absorption and Vacancy Trends dominating the absorptions. In the second and third quarter of
2.50 12 2008, entire absorption was in the commercial office space
segment. In 2008, Salt Lake saw maximum absorption in the
10
2.00 commercial office space. Prime CBD locations and Dalhousie
Area (million sq.ft.)
15
100 market.
10
Growth Rate (%)
80
5
Pursuant to the general slowdown in the economy, Kolkata
60
0
witnessed significant correction in the rental values across
40 almost all micro-markets by the end of 2008. During 1Q 2008,
-5
20
only Park Street and Rajarhat witnessed an increase in the
-10
rentals. Rentals stabilized in 2Q 2008 baring a marginal rise in
0 -15
CBD locations and Dalhousie due to the buoyancy in demand
Salt Lake2
Rajarhat2
Rash Behari
Dalhousie
Park Circus
Camac Street
Connector
Connector
Park Street/
Square
(Topsia)
(Ruby)
120
registered decline in the range of 4-5% , primarily due to the
100
limited new supply in the offing. Rajarhat and Salt Lake
80
continued with their trend of rental correction attributable to
60
the rising levels of vacancy.
40
20
1 Average rentals are for bareshell facilities
0 2 Rentals are for warm shell facilities (shell and core facility, power, high side air
conditioning and 100% power backup)
1Q - 04
2Q - 04
3Q - 04
4Q - 04
1Q - 03
2Q - 03
3Q - 03
4Q - 03
1Q - 06
2Q - 06
3Q - 06
4Q - 06
1Q - 07
2Q - 07
3Q - 07
4Q - 07
1Q - 08
2Q - 08
3Q - 08
4Q - 08
1Q - 05
2Q - 05
3Q - 05
4Q - 05
2
Park Street / Camac Street Dalhousie Square Salt Lake
2
Park Circus (Topsia) Rash Behari Connector (Ruby) Rajarhat
38
KOLKATA MARKET OUTLOOK
Outlook which have come up as new residential hubs in addition to
south Kolkata. However the infrastructural complexities have
The projected office space supply for 2009 is expected to be
slowed down the pace as well as the attractiveness of the
approximately 2.5 million sq.ft., a substantial part of which is
projects in the new locations especially in Rajarhat to some
deferred supply from 2008. Most of the upcoming supply will
extent.
be concentrated in the peripheral locations of Salt Lake and
Rajarhat. Of the total expected supply, approximately 1 million Newer locations were characterised by substantial number of
sq. ft. will be in SEZs. Deferred supply of 2008 will constitute projects in the mid range segment. Certain micro markets
majority of the supply in 2009. Salt Lake and Rajarhat are mainly in the prime residential pockets also observed re-
expected to witness higher vacancy levels as well as further development of properties. However, the city at large,
correction in the rentals as few major projects are lined up witnessed limited number of projects being delivered in 2008.
for delivery by the second quarter of 2009. E.M. Bypass and A few mega-townships projects were observed being shelved
Park Circus Connector too may witness a fall in rental values or deferred while certain others saw projects size being
as couple of mixed-use developments are anticipated to infuse trimmed down in wake of the prevalent conditions.
new supply in these micro-markets. Kolkata market is likely to
see a mixed trend in demand comprising of both IT/ITeS and Capital Values
commercial office space. The city is likely to witness pre- Capital values in Kolkata witnessed minor changes during the
commitments of approximately 1 million sq.ft turning to year remaining largely stable across most micro-market in
absorptions in 2009. With the prevalent economic conditions, both the segments. Kolkata market exhibited least panic sales
new requirements from IT/ITeS sector, which has been the key in wake of the economic slowdown. Towards the end of 2008,
demand driver, is expected to be slow and thus impacting the a slight decline was observed in the locations of Ballygunge,
demand for new office space supply. But with major IT/ITeS Alipore Road, Rajarhat and south Kolkata markets. Mid-range
pre-commitments of 2008 expected to get absorbed, the housing characterised by end-users preferred to hold on to
share of the IT/ITeS segment will still surpass demand for their assets thus reducing any major fluctuations barring a
commercial office space in 2009. minor decline in south Kolkata. The high end segment
recorded a minor decline on account of few investors seeking
Rental Cycle
disposal of their investments.
Rental 4Q 2008
Peak 1
Average Residential Capital Values - High End
4Q 2009(F) 12,000 30
25
Market Market 10,000
Capital Values (INR/sq.ft.)
5
4,000
Market Market 0
Recovery Bottoming
2,000
-5
0 -10
Southern
Avenue,
Dover Lane
Ballygunge
Queen Park,
Rainy Park
Gurusday Rd
EM Bypass
Lansdowne,
Park Street
Salt Lake
Rajarhat
Rental
Trough
5,000
14
approach. Investors showed an inclination to exit the
4,000 12
investments. With the global slump, funding from financial 10
3,000
institutions was constricted to a certain extent leading to 8
2,000 6
lesser demand for residential properties. An anticipation of
4
further correction in the prices too has restrained demand 1,000
2
from end users and investors alike both in the mid-range and 0 0
New Alipore,
Golf Green,
Tollygunj
Hindustan
Park
EM Bypass
Rajarhat
Kakurgachi,
Lake Town,
Jessore Rd,
Jltadanga
senior and middle management to the city. It has further Source: Cushman & Wakefield Research
accentuated the emergence of newer locations like EM Bypass 1 Average high end values are for properties above 3,000 sq.ft.
and Rajarhat and outer peripheries of Kolkata district etc. 2 Average mid end values are for properties below 2,000 sq.ft.
39
KOLKATA MARKET OUTLOOK
Rental Values residential pockets are unlikely to witness any major
fluctuations as opposed to the trend observed during the
Rentals values in Kolkata witnessed mild fluctuations during
fourth quarter of the year.
the first three quarters of 2008 across all micro-markets in
the high-end segment. The mid range segment remained stable Outlook
due to buoyant demand and also due to the fact that this
The rental and capital values in prime residential locations are
segment is price sensitive and could have been negatively
likely to remain stable over next few months largely due to
impacted incase of any increase in rental values. Thus in a
continued demand at the current values. With overall market
deliberate attempt to ensure healthy demand, landlords
sentiments trickling into the Kolkata market, the propensity of
largely maintained their rental values at the existing rates.
the lessee to lease at higher values is limited thereby bringing
However, high end segment witnessed major drop ranging
in stabilisation in values. However, emerging locations and new
from 4- 22% in rental values over a single quarter during 4Q
projects may see some corrections in the prices owing to the
2008. Least change was observed in the south east Kolkata
present economic slowdown lessening the pace and quantum
(EM Bypass) across all quarters and segments during the year.
of transaction activities in the market. The market is unlikely
This was primarily due to its proximity to the major business
to witness new project launches until it regains its lost
districts and easy connectivity in addition to high-quality
confidence; new projects even if launched are likely to be
projects.
more oriented towards affordable housing.
Average Residential Rental Values - High End1
140,000 25 RETAIL
20
Rental Values (INR/month)
120,000
Annual Growth Rate (%)
15
The retail sector in Kolkata which demonstrated signs of
100,000
10 revival in early 2008 with two major malls becoming
80,000
5 operational witnessed no fresh mall supply in the second half
60,000
0 of the year. Few major mall projects that were earlier
40,000
-5
expected to become operational during the year have now
20,000 -10
0 -15
Mall Supply Trend
Southern
Avenue,
Dover Lane
Ballygunge
Queen Park,
Rainy Park
Gurusday Rd
EM Bypass
Lansdowne,
Park Street
Salt Lake
Rajarhat
3.50
3.00
Low High Annual Growth Rate (%)
Area (million sq.ft.)
2.00
Average Residential Rental Values - Mid End2
1.50
40,000 140
1.00
35,000
Rental Values (INR/month)
120
Annual Growth Rate (%)
0 0
Average Mall Rental Trend
New Alipore,
Golf Green,
Tollygunj
Hindustan
Park
EM Bypass
Rajarhat
Kakurgachi,
Lake Town,
Jessore Rd,
Ultadanga
550
500
Rental Values (INR/sq.ft./month)
450
Low High Annual Growth Rate (%) 400
Source: Cushman & Wakefield Research 350
300
250
North east Kolkata particularly Rajarhat was expected to 200
change the dynamics of residential market in Kolkata but it 150
40
KOLKATA MARKET OUTLOOK
been deferred and are slated for 2009 launch. In Kolkata renegotiating the rental values to cover on the rising
market, the retailers have shown a preference for being operational costs.
present across the city's various malls. Retail rental values
across the city's main streets stabilized during the first three Main Street Development
quarters of 2008; however by the end of the year some
During 2008, the prominent main streets of Kolkata - Park
corrections were observed in Park Street and Theatre Road.
Street, Camac Street, Elgin Road and Theatre Road witnessed
Mall Development restrained activities as compared to the malls. Retail rentals
across the city's main streets remained stable over the first
The city witnessed about 1.37 million sq.ft of new mall supply three quarters of 2008. By fourth quarter of 2008, a slight
in 2008 which was entirely accounted for by two malls -
South City Mall in south Kolkata and Mani Square in EM Average Main Street Rental Trend
Bypass that started operations in the first half of 2008. The 300
South City Mall measuring approximately 1 million sq.ft
Note :
l The rental values indicated are base rents and do not include interest cost of security deposit, maintenance charges and other such outgoings.
l Average rentals are for ground floor premises on carpet area
41
AHMEDABAD MARKET OUTLOOK
Sardar
Gota
Patel
Chandkheda Ring Rd
ONGC
Vastrapur Area
hw
Rd
Hig
Ashram Rd Saraspura
G.
Satellite Rd Odhav
C.
S.G
Sarkhej Ahm
Kankarai Ghodasar eda
bad
Amraiwadi Vad
Isanpur oda
ra E
xpr
ess
Mani Nagar Hw
Narol y
CTM
Sabarmati Vatwa
SH 4 NH 8
River
SH 3
Lambha
42
AHMEDABAD MARKET OUTLOOK
Owing to the significantly reduced supply, Ahmedabad projects and even postponement in launch of a few new
witnessed an average vacancy of approximately 3-4% in 2008 projects thus curtailing the entry of new supply in the first few
which was marginally lower than the vacancy levels of 5-7% months of 2009. Owing to the limited supply in the next 3-6
observed in 2007. With a few companies vacating premises months, the rental and capital values across most micro
and reduced leasing activity happening across Ashram Road, markets are expected to remain stable over short to medium
the micro market witnessed the highest vacancy of about 6%. term.
Sarkhej Gandhinagar Highway and Satellite Road witnessed
vacancy of approximately 4% followed by C.G Road which Rental Cycle
recorded the lowest vacancy of about 2%. Rental 4Q 2008
Peak
35 Slowing Recession
30
30 Weakening
25 Strengthening
5 5
Rental
0 0 Trough 4Q 2009 (F)
C.G Road
Ashram
Satellite
Gandhinagar
Road
Road
Highway
Sarkhej
2007 2008 Growth Rate (%) Sarkhej Gandhinagar Highway is expected to be an active
Source: Cushman & Wakefield Research commercial corridor of the city due to its accessibility to
several planned SEZs, Gujarat International Finance Tech City
Average Rental Values Trend - Office Districts1 (GIFT) and Industrial Parks such as Sanand. Sarkhej
100
Gandhinagar Highway along with Satellite Road will be
Rental Values (INR/sq.ft./month)
80
witnessing development of commercial buildings with no retail
component which is expected to command a premium over
60
other mixed use developments.
40
RESIDENTIAL
20
Historically the Ahmedabad residential sector has been
0 dominated by independent row houses and villas. However the
1Q - 04
2Q - 04
3Q - 04
4Q - 04
1Q - 03
2Q - 03
3Q - 03
4Q - 03
1Q - 06
2Q - 06
3Q - 06
4Q - 06
1Q - 07
2Q - 07
3Q - 07
4Q - 07
1Q - 08
2Q - 08
3Q - 08
4Q - 08
1Q - 05
2Q - 05
3Q - 05
4Q - 05
43
AHMEDABAD MARKET OUTLOOK
Average Residential Capital Values - High End1 Outlook
3,000 0 With developers postponing their projects as a result of
Capital Values (INR/sq.ft.)
0 -16
infrastructural developments such as Bus Rapid Transit System
Satellite
Road
Navrangpura
Judges
Bungalow
Nagar
Vastrapur
Mani
Nagar
(BRTS) and Mass Rapid Transit System (MRTS).
A few integrated townships by local and national developers
Low High Annual Growth Rate (%) have been proposed in peripheral locations of Ahmedabad
Source: Cushman & Wakefield Research such as Sanathal, Dantali and Sardar Patel Ring Road which are
expected to add more supply of mid and high end properties
Investor activity which was largely confined in western in Ahmedabad in near future.
Ahmedabad also subsided in the second half of 2008 due to
curtailed availability of funds. Navrangpura and Vastrapur
RETAIL
witnessed highest drop in capital values across high end
residential properties due to increasing preference of end Organized retail in Ahmedabad is primarily concentrated in
users towards new residential developments in Prahlad Nagar western parts of the city in locations such as C.G Road,
and Satellite Road. However a conservative approach and Sarkhej Gandhinagar Highway, Satellite Road and Drive-in
postponement of purchase decisions by end users has forced Road. In 2008 main streets witnessed higher leasing activity as
developers to offer discounts and freebees. compared to malls with C.G Road being the most active and
sought after main street in Ahmedabad. An overall slowdown
Rental Values in consumer spend has resulted in a drop in sales which has
Since capital values appreciated by about 2-3 times over the forced many retailers in the city to either reconsider their
last few years and investors looked to maintain their returns, expansion plans or reduce new or previously committed space
an increase in rental values across all micro markets of Mall Supply Trend
Ahmedabad was witnessed in 2008. Decrease in affordability
1.4
of end users due to significant high interest rates has also led
to increase in demand for rental accommodation. As 1.2
1
Ahmedabad commands higher rental values due to their
0.8
proximity to offices and improved social and physical
infrastructure. Proximity to commercial and retail hubs such 0.6
Average Residential Rental Values - High End1 Source: Cushman & Wakefield Research
20,000 30
18,000 Average Mall Rental Trend
25
Capital Values (INR/month)
16,000
Annual Growth Rate (%)
300
14,000
20
Rental Values )INR/sq.ft./month)
12,000
10,000 15
8,000 200
6,000 10
4,000
5
2,000
100
0 0
Satellite
Road
Navrangpura
Judges
Bungalow
Nagar
Vastrapur
Mani
Nagar
0
Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08
Dec 2007 Dec 2008 Growth Rate (%)
1 Average high end values are for properties ranging from 1,500 to 4,000 sq.ft. Source: Cushman & Wakefield Research
44
AHMEDABAD MARKET OUTLOOK
take up. In the last 4 quarters, rental values have gone down Average Main Street Rental Trend
by approximately 6-26% across main streets and about 16- 200
Mall Development
100
Ahmedabad saw the commencement of two malls in 2008
which were mostly concentrated in micro markets of Sarkhej
50
Gandhinagar Highway (350,000 sq.ft.) and Satellite Road
(220,000 sq.ft.) adding 570,000 sq. ft. of mall space, taking the 0
total mall stock of the city to 2.63 million sq.ft. However, as Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08
Note :
l The rental values indicated are base rents and do not include interest cost of security deposit, maintenance charges and other such outgoings.
l Average rentals are for ground floor premises on carpet area
45
END NOTES
According to a Cushman & Wakefield report on the economy Despite positive intentions, these measures failed to create any
and its impact on real estate, the good news for Asia is that immediate impact on the sector, save lowered construction
growth is still expected to do better than in previous costs. For starters, a more pro-active role was expected from
downturns experienced by the region. The big Asian banks as far as instantaneous sanctioning of affordable housing
economies of China and India are forecast to grow at 8.5% loans was concerned.
and 6.3% respectively, compared to sub-zero growth in the
To strengthen the credit/fiscal front of the economy the
USA and EU. In addition, domestic demand from the two and
Centre is expected to announce its second stimulus package in
a half billion consumers of Asia's two strongest emerging
early January 2009. At the end of the day, till these measures
economies will help support intra-regional Asian trade even in
get translated from the drawing board on to the marketplace,
such dismal times.
it is really too early to assess the impact of such stimulus
Governments and international institutions have put in place packages on the realty sector in the short to medium term.
mechanisms to try to prevent the transmission of the crisis
India Realty Confidence Index 2008
from the advanced economies into Asia. Though it is too soon
yet to indicate its success, the great advantage Asia has is that The slowdown in the Indian economy along with restrained
its governments have sufficient reserves and surpluses and are availability of funds and reducing demand across all
better placed to survive the turmoil than emerging markets in sectors (commercial, retail and residential) have taken a
other regions. toll on confidence levels of developers, financial institutions
and end users alike. Stakeholders' confidence nosedived in
As investment markets become more liquid, Asia will be well
2H 2008, particularly for major cities like Mumbai and NCR,
placed to benefit from that investment and will continue to be
which witnessed subdued demand for commercial office
a great place to hold real estate assets. At present even
space during the period, coupled with large upcoming supply
though real estate deals are somewhat slow, as markets start
and increasing vacancies. The drop in confidence level was
to ease, economic conditions combined with government
comparatively lower in cities like Hyderabad, Pune and
reserves available for stimulus packages should continue to
Bangalore. This can be attributed to developers anticipating
make Asia attractive for investments.
an upswing in demand, particularly for residential space
Though not on the massive scale of the Chinese government, over the next six months as a fall out of lowering home loan
but the Indian government too introduced several fiscal and interest rates.
stimulus packages. Since October 2008 the Reserve Bank of
India (RBI) had been taking several steps to lower interest Real Estate Confidence Index - 2008
0
rates in a bid to revive market conditions. But with banks -20
-10 10
20
treating the real estate sector with extreme caution, a -30 30
-40 40
plunging consumer confidence index and crashing valuations,
-50 50
the resources of both developers and funds are limited,
-60 60
leading to frozen projects and staggered/aborted expansion
-70 70
plans. The hardest hit, are the small and medium-ticket
players. -80 80
As a stimulus package for the sector (and to help the rollover -90 90
of existing debt), industry bodies such as the National Real -100 100
Estate Development Council (NAREDCO) and the NCR Mumbai Hyderabad Kolkata
Confederation of Real Estate Developers' Associations of Pune Chennai Ahmedabad Bangalore
India (CREDAI) had appealed to the Government to ease FDI Source: Cushman & Wakefield Research
and ECB norms as well as to formulate fresh policies for
City Confidence Index
rescheduling term/ construction loans.
NCR 4Q 2008
As part of the first stimulus package announced by the H1 2009
Government in December 2008, the RE sector was allowed Mumbai
What the first stimulus package spelt for the RE sector Bangalore
?Excise duty cuts on construction costs like steel and cement Source: Cushman & Wakefield Research
46
END NOTES
Drop in confidence levels have resulted in developers ?Resizing of retail outlets, increasing renegotiations on
postponing launch of new projects and focusing on reducing rentals and even exit from unviable retail locations
their current inventory; while financial institutions have ?Retail spaces seeing conversion into office space for quick
adopted a cautious approach in investing in upcoming real revenue returns in certain micro markets
estate projects.
?Sustaining retail business through innovative revenue
In spite of several fiscal measures being undertaken by the RBI models, such as minimum guarantee and revenue sharing
and central government to stimulate demand, real estate
?Buy out of space rather than lease, by firms with enough
stakeholders are likely to remain cautious in 1H 2009 across
liquidity
most markets. A large number of respondents foresee real
estate and finance market conditions worsening over the next ?Consolidation of small-ticket players by bigger, more stable
six months, indicating that 2009 is likely to have a weaker start players in the realty sector
as compared to 2008. Long-Term India Story Remains Intact
Confidence Index Methodology
The long-term India story remains intact because the
Cushman & Wakefield's Real Estate Confidence Index is a measure fundamental growth drivers of the economy continue to exist.
of the stakeholders' confidence level and expectation based on the The present crisis may be taken up in a positive spirit as a
current market scenario and future outlook. To asses the current
learning experience for the sector to grow stronger, more
confidence levels, a survey was conducted across the country, where
respondents (developers, financial institutions and end users) gave disciplined and organised at the end of the day, with greater
their opinion on factors like financial environment, business transparency. While the short-term investor has been hit, the
conditions, current and anticipated demand, movement of rental and long-term investors as well as primary end user demand
capital values, etc. remains intact. With the nation's realty growth drivers
The gathered data was collated to assess shifts in confidence levels, remaining unchanged, the current situation is more like a
which would influence future business cycles in the Indian real estate temporary, albeit longish, market upheaval which will right
sector. A positive confidence level indicates increasing availability of itself in the long-term.
funds, heightened constructions activity and increasing demand. A
drop in confidence level, however, highlights a pessimistic view Long-Term Growth Drivers in India
resulting in a slowdown in demand and consumer spending.
?The rise of the middle class,
?The rise of a knowledge-based economy,
Outlook ?Greater deregulation, and
Despite the credit crunch, real estate deals are still taking ?Growing lifestyle aspirations and growing affluence
place although at a slower pace. The outlook for the real
estate sector in India remains broadly better than other
The current economic slowdown is forcing companies across
emerging markets across the globe. According to Cushman &
the world to formulate strategies that will help in surviving the
Wakefield Research, greater demand from consumers and
downturn. Falling demand and dropping top lines have
falling dependency ratios will provide the basis for growth in
necessitated cost optimisation and a disciplined approach to
the Asia Pacific region, including India, which in turn will
growth. Companies are finding these economic conditions
support demand for real estate.
challenging and with compressed profit margins, it is likely that
New Trends: Current & Upcoming they will squeeze operational efficiencies to extract maximum
value. In such a scenario, real estate, given its share in the
?Companies basing office leasing activities on short-term
operational or capital expenditure of a company, can
outlook rather than on long-term expansion plans
contribute significantly to reducing operational cost and
?Need-based leasing of space gradually gaining ground as protecting the bottom line. This, however, will not be achieved
demand for soft options declines by mere downscaling of the real estate exposure, but by
?Increasing subleasing of space by corporates in the office making real estate a key part of the overall business strategy
sector of any company.
?Exit by commercial space takers from CBDs and probable Given the changing landscape, developments with a balanced
relocation to more sustainable areas mix of real estate are likely to do better than most. Realistic
?Home buyers will look out for affordable and quality and more affordable price points in the housing sector, instead
developments in a price-sensitive market of merely reduced square footage, are also required to revive
the market. To survive, the sector now needs to return its
?Township projects with a balanced mix of developments
focus on quality, affordability, efficiency and delivery.
will do better
?Increasing opportunity being created by developers for
smaller space occupiers
47
C&W OUTLOOK
CUSHMAN & WAKEFIELD
Cushman & Wakefield is the largest privately held premier real estate services firm in the world. Founded in 1917, the firm
today has 227 offices in 59 countries around the globe with over 15,000 talented professionals. Cushman & Wakefield is
involved in every stage of the real estate process, from strategy to execution, representing clients in buying, selling, financing,
leasing, managing and valuing buildings that shape the skylines of the world; and provide strategic planning and research,
portfolio analysis, site selection, space location, project and property management services.
Cushman & Wakefield commenced India operations in 1997 and was the first international real estate service provider to
have been granted permission by the Government of India to operate as a wholly owned subsidiary. Today, with a work
force of over 1,300 employees, across offices in Gurgaon, New Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata and
Pune, C&W has serviced the needs of clients in all major Indian cities like Mohali, Chandigarh, Baroda, Goa, Nagpur, Jaipur,
Mysore, Coimbatore, Tuticorin, Cochin, amongst others.
India is one of the most promising countries in Asia while also being one of the finest IT destinations today; however, the
Indian real estate market is considered to be one of the most complex markets within Asia, hence creating the need for
professional real estate management.
From sophisticated, complex transactions to basic administration, our services are provided on a regional, national, and
worldwide basis to major corporations, developers, retailers, investors, entrepreneurs, government entities, small and
midsize companies, and financial institutions worldwide. Capitalising on global technology we maintain the highest quality of
real estate counsel and service.
We are strategically poised to service the varied needs of clients throughout the Indian sub-continent through our
comprehensive real estate solutions, furnished via seven main business lines: Occupier Services, Investment Services,
Development Services, Residential Services, Retail Services as well as Industrial Services
We strongly believe in maintaining integrity and achieving excellence in all that we do, creating a name that our clients
would always like to associate with.
48
CUSHMAN & WAKEFIELD INDIA OFFICES
New Delhi Mumbai (Churchgate) Bangalore
Tel: (91 11) 2619 2512-17 Tel: (91 22) 2281 3317/19/20 Tel: (91 80) 4046 5555
Fax: (91 11) 2619 5829 Fax: (91 22) 2202 5165 Fax: (91 80) 4046 5566
Email: newdelhi@ap.cushwake.com Email: mumbai@ap.cushwake.com Email: bangalore@ap.cushwake.com
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Wakefield accepts no responsibility if this should prove not to be the case. No warranty or representation, express or implied, is made to the accuracy or
completeness of the information contained herein and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal
without notice.
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