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India Equity Research Reports, IPO and Stock News
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Realty Check India
Perception vs. Realty
Investment view – BSE Realty has gained by 24% from its Feb lows (vs. Sensex
return of 10%) underpinned by receding macro headwinds and cheap
valuations. Much talked about debt repayment pressure on companies over Mar-
11 seems to have passed away without much notice. Despite the run up, property
stocks are still trading ~40% below their Oct-10 levels (vs. this Sensex is ~8%
off Oct peaks) and valuations remain reasonably accommodative. We continue
to like IBREL/UT given sharp disconnect between asset value and market cap
and JPIN as a potential high cash flow yield (dividend play). In Bangalore we
like Prestige Estates given cheaper valuations, high level of residential pre-sales
and visibility on annuity portfolio.
•Physical fundamentals: Perception vs. Real(i)ty
o Residential- - Absorption holding firm over Jan/Feb contrary to news
flow of slowdown –Gurgaon has been a standout performer registering its
record volumes in Jan/Feb (+50% vs. CY10; +26% Q/Q) over the last 3
years. Other key markets i.e. MMR/Bangalore too have registered a decent
5-10% volume growth except South Mumbai (much highlighted in media)
and Noida/GNoida (off a high base). Pace of new launches at the margin
seem to be the best in NCR, However they have slowed down
meaningfully in Mumbai/Hyderabad/Bangalore as changing political
landscape have made approvals slow to come by. Months of unsold
inventory has remained largely stable across most markets (8-12 months).
o Office- Fundamentals are improving but supply /taxation issues
remains. Office fundamentals have been steadily improving with
absorption CY11 absorption at 40msf (JLLM est.) expected to surpass
earlier peak (~33msf). While NCR and Bangalore have led the revival over
the last year; Hyderabad is expected to outperform in CY11 given strong
pre leasing trends and affordable rents. Rentals have started to inch up in
select markets however a meaningful appreciation is unlikely near term as
supply (60msf in CY11) continues to surpass the demand. Taxation
(MAT/DDT) on SEZ’s as per the budget will also likely impact
profitability of select commercial developers
o Retail: Absorption gaining momentum and rents look to be
improving; despite “oversupply” concerns -2010 marked the beginning
of a meaningful recovery in the retail segment with retailers resuming back
their expansion plans. JLL expects the absorption to strengthen further in
2011 to almost 12msf above the peak level of 9.6msf seen in CY07.
Regarding supply we note that CY10 witnessed <40% of initial supply
estimates coming on-stream thereby resulting in a healthy demand supply
balance. As per C&W, only half of CY11 supply projections may actually
materialize. Lack of quality retail space is still identified as a growth
constraint by a number of retailers
Residential – Absorption remains healthy contrary to
perception of a volume slowdown
Residential volumes across key Indian cities remain healthy over Jan-Feb and have
registered decent Y/Y growth despite investor concerns to the contrary. Gurgaon has
been a standout performer over Jab-Feb registering its record volumes over the last 3
years; while volumes in most other markets (MMR/Bangalore) are up 5-10% Y/Y
with the exception of South Mumbai (most highlighted in media) and Noida (coming
off high base).
Mid income projects seem to be driving the absorption across most markets. While
slew of mid income launches in Gurgaon over the last two quarters have seen healthy
offtake; absorption in distant suburbs in Mumbai (Virar-Vasai/Navi Mumbai/Thane)
too remains fairly buoyant given reasonable price levels.
Even while the demand remains buoyant, new launches have slowed down
meaningfully in Mumbai/Bangalore over Jan/Feb likely on account of approval
delays. Changes in political landscape in key cities Mumbai, Bangalore and
Hyderabad have also made approvals slow to come-by. Mumbai seems to be most
impacted as new launches have been at a standstill pending policy reviews (scrapping
of car parking FSI, reduction in concession area etc).
In terms of overall supply, Gurgaon being the best performing market has seen
inventory declining over past 2Qs despite high launch activity. Months of unsold
inventory in the market is currently at 7 months of trailing 3 months absorption.
Other markets witness fairly stable inventory levels as delay in launches has resulted
in a healthy demand supply balance. Months of unsold inventory stands at 8 months
in Mumbai; while Chennai and Bangalore are at 11-12 months of trailing 3 month
absorption.
In terms of pricing, while Mumbai has started to see price correction; prices in
Gurgaon remained largely stable. Price growth in other markets (Bangalore/Chennai)
remains healthy between 5-10% Y/Y.
In terms of various markets-
1. Gurgaon - Absorption run rate in Gurgaon (at 3,135 units per month) over
Jan/Feb has increased by an impressive 26% Q/Q and is running 50% higher
than CY10 average (2,095 units a month). This is the highest absorption run rate
recorded in Gurgaon in the last 3-4 years. This was primarily aided by strong
response to recent mid income launches. Launch activity (~at over 3,000 units a
month) in the market have picked up meaningfully over the last two quarters
registering a 2-3x increase as compared to 1HCY10 levels (1,300 units a month).
In terms of supply overall months of unsold inventory (at 7 months) has further
declined marginally on the back of strong absorption trends. Key projects
driving the absorption over Jan/Feb include Alpha Corp”s Gurgoan One (440
units sold), Sare’ Group Green Par project (~600 units) and Unitech’s
Sunbreeze/South Park (600 units).
2. Mumbai- Absorption run rate in Mumbai (at 2,817 units a month) has come
down by 7% Q/Q over Jan-Feb primarily due to slow absorption in South
Mumbai (-20% Q/Q) and prime suburbs (-10% Q/Q). Volume in distant
suburbs (like Virar-Vasai, Navi Mumbai, Thane) however remain fairly buoyant
(+0-20% Q/Q) on the back of affordable pricing and new launches. Interestingly,
overall 1QCY11 Mumbai/MMR absorption run rate is running 6-8% higher than
CY10 average as against a sharp decline being talked about in the media reports
(based on registration data). Key projects driving the absorption include HDIL’s
Virar Vasai project (220 units sold in Jan Feb), Hiranandani’s Panvel project
(265 units sold in Jan/Feb) and Lodha’s Casa Rio project in Dombivalli (720
units sold in Jan/Feb). Launches in the market have come down meaningfully
over Jan-Feb (down 10-30% compared to CY10 average) pending policy
reviews in Mumbai. Unsold inventory has remains largely stable at 8 months
Q/Q despite slow absorption trends as launch activity remains muted.
3. Among other NCR markets, residential volumes in Noida/G Noida after
witnessing an astonishing increase in CY10 have come off by 20-30% Y/Y (as
compared to CY10 avg.) given a very high base. Months of unsold inventory (8-
9 months) has started to inch up as absorption slows down while launches
remain high in the micro market.
4. Bangalore – Absorption run rate in Bangalore remains fairly healthy at 2,400
units/month which is 12% higher than CY10 average. On Q/Q basis, the
volumes have come off by 9%; however this follows a 28% increase seen in
Dec-Q (festive demand). Further, launches have been slow in the market due to
approval delays (-26% Q/Q). Price growth in the market has been relatively
modest (5-10%) as against other markets thereby keeping the affordability
healthy. Months of unsold inventory has remained largely stable at 11-12
months.
5. Chennai registered a 62% Q/Q increase in absorption in Dec-Q (Jan/Feb-11 data
note available as yet). Overall volumes for CY10 stood 30% higher than 2009
levels. Launches have picked up meaningfully over the last 2 Qs (+6x from 2Q).
More importantly, months of unsold inventory has come down over the past two
quarters given sharp pick up in absorption (c9 months vs. 12 months in Jun-Q
Policy action – Expect to remain Counter Cyclical.
Over the last one year, policy direction on real estate has been counter cyclical and is
expected to remain so in the medium term. The central bank has largely reversed
back most of the stimulus measures given in 2008 to revive the real estate sector
(please see table below). In general property stocks tends to under perform in the
early stages of rate tightening but as confidence in GDP improves the correlation
breaks down mid to late cycle.
Office recovery on a strong foothold; rentals too improving
at the margin
Leasing activity has picked up meaningfully in 2010 with the absorption levels
recovering the peak 2007-08 levels. Overall for 2010 pan India absorption stood at
33msf as against 20msf in CY09. Going into 2011, most IPCs expect the absorption
to strengthen further to ~40msf – almost double of CY09 levels. JLL expects
absorption to grow at 14% CAGR over CY10-13; though high vacancy (22%) on
account of completing supply will keep rents under check.
In terms of various markets, NCR and Bangalore have been leading the revival over
the last one year . Going into 2011, Bangalore and Hyderabad are expected to
outperform due to good pre leasing and reasonable rentals.
Vacancy level declined across most markets as supply got deferred to CY11 and
demand remains buoyant. Rentals have started to appreciate in select markets in
Bangalore and NCR; while other markets remained largely stable Q/Q. JLL expects
the rentals to start recovering meaningfully from towards end 2011 given positive
absorption trends across most markets. Office investment yields have started to come
down over the last one year (-80-100bps) and currently range from 10%-11%.
Encouraged by encouraging revival over the last two quarters, developers have
started to expedite construction as well as revive few office projects which had been
put on halt over the lat two years due to weak demand. Hence, most markets are
expected to witness large supply in 2011. JLL expects supply of 60 msf in 2011
against estimated absorption of 36msf.
In terms of various markets,
1. NCR continues to register steady increase in office absorption (+36% Q/Q,
+90% Y/Y). Overall 1.9msf was leased in Dec-Q (Gurgaon – 1.5msf; Noida
– 0.3msf) as against 1.4msf/1msf in Sep/Jun-Q. Gurgaon accounted for over
80% of the total absorption. Correspondingly, supply in the market was also
high at 2.9msf (highest in last two years) thereby keeping vacancy levels
largely stable Q/Q. Overall vacancy levels stood at high >30% primarily due
to huge vacant space in Noida (>40%). Rentals have started to inch up esp
in prime Delhi/Gurgaon (up ~5%Q/Q) on the back of improving absorption.
2. Mumbai continues to register healthy leasing run rate with 2.1msf of leases
being concluded in Dec-Q (+10% Q/Q). Leasing run rate in Mumbai has
stabilized at 2msf (double of CY09) over the last four quarters. BFSI sector
accounted for majority of absorption in CY10. Supply during the Q
declined by 50% Q/Q as project completions got deferred to CY11 thereby
resulting in marginal dip in vacancy levels (20%). Rentals remained largely
stable Q/Q across most markets with the exception of CBD as occupiers
shift to quality developments in SBD locations (Bandra/Lower Parel).
3. Bangalore recorded highest absorption across all key markets for the third
consecutive quarter primarily driven by IT/ITeS sector. Dec-Q leasing
stood at 2.4msf thereby taking overall CY10 absorption to 8.1msf against
4.5msf for CY09. Interestingly, Whitefield accounted for close to 40% of
the absorption in Dec-Q on account of low vacancy in ORR market. With
Bangalore market witnessing modest supply of 0.8msf during Dec-Q;
vacancy levels came down to 21% from 23% in Sep-Q. Rentals appreciated
by 5-10% primarily in CBD and SBD markets; while Whitefield and
Electronic City remained stable Q/Q (given high vacancy rates ~>40%).
4. Chennai witnessed an impressive pick up in leasing over the last few
months registering a threefold increase in absorption over Dec-Q. Overall
absorption at 2.2msf (+175% Q/Q) is highest take up recorded over the last
two years. Further with no additional supply becoming operational during
the Q (as projects completions got deferred), vacancy levels declined by
meaningful 500bps during Dec-Q (to 29%). Rentals in CBD/off CBD
appreciated by 5-8% on the back of improving demand trends.
5. Other markets (Hyderabad, Pune, Kolkata) with the exception of
Kolkata too continue to register robust leasing trends. Hyderabad stood out
with Dec-Q leasing at 1.8msf (+211% Q/Q). Rentals and vacancy levels
have largely remained stable Q/Q given high vacancy levels and supply
overhang across most markets.
Retail –Absorption gaining momentum; oversupply
concerns seem to be overstated
2010 marked the beginning of a meaningful recovery in the retail segment as both
domestic and foreign retailers resume back their expansion plans. Further, developers
too have become more accommodative in terms of their asking rents and lease terms
in order to ensure higher occupancy. JLL expects the absorption to strengthen further
in 2011 to almost 12msf above the peak level of 9.6msf seen in CY07.
While oversupply concerns persist in the market (20msf expected to come on stream
in CY11); we note that 2010 witnessed less than 40% of the initial supply estimates
actually materializing (7msf became operational in 2010) by the end of the year.
More importantly; the quality of supply entering the market has been a key concern
for most retailers.
Pre-lease commitments in number of upcoming projects is also quite low due to lack
of proper catchments/concentration in retail developments in the vicinity and slower
execution. These projects are likely to be delayed further due to lack of pre lease
commitments, in our view. As per C&W, only half of the supply projection
(~19.3msf in CY11) may actually materialize by the end of the year.
Deferment of new supply has led to a healthy demand supply balance thereby
keeping the rentals and vacancy levels largely stable Y/Y. While rentals in prime
locations are expected to remain firm; suburban locations could see some downward
pressure due to supply overhang.
Vacancy levels came down marginally to 15.5% from 17% at CY09 end. While mall
rentals are currently 30-45% below their 2007-08 peaks and seem to have bottomed
out; minimum guarantee coupled with revenue share is emerging as favored model of
lease agreement among retailers as well as developers.
In terms various markets
1. NCR witnessed a supply of ~3.6msf in CY10 which is significantly higher
than CY09. However, the supply has been balanced by the demand strength
as new brands/retailers look to establish their presence in the mall capital of
India (Delhi-NCR). Rentals have started to appreciate in prime West Delhi
malls and high street locations; while rentals remain largely stable in other
locations (Noida, Gurgaon).
2. Mumbai has witnessed a meaningful pick up in lease commitments over the
last two Qs. Increasing demand and limited quality supply has resulted in
appreciation in rentals across most micro markets. Rentals in high street
locations and grade A malls have increased by 20-30% over the last year.
While supply pipeline remains sizeable in the market; pre lease
commitments are quite high in these upcoming projects.
3. Bangalore has relatively low retail stock (~1msf) and low vacancy (<1%).
The upcoming mall projects in the city have seen huge take ups from
retailers (high pre lease commitments). The city is expected to be very
active as number of projects become operational in 2011. Rental values
witnessed an increase in both high street locations as well as mall projects
(~10%) and the trend is expected to continue given limited supply.
4. Chennai market witnessed a supply of ~1msf in CY10. New malls (Express
Avenue and Ampa Skywalk) in the city have been launched at high
occupancy levels and have seen encouraging footfalls. Overall vacancy rate
in the city stands at 3.5% and rentals have seen appreciation of 5-7% in
CY10. Demand remains buoyant in the city; however huge supply pipeline
is likely to keep the rentals stable.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Realty Check India
Perception vs. Realty
Investment view – BSE Realty has gained by 24% from its Feb lows (vs. Sensex
return of 10%) underpinned by receding macro headwinds and cheap
valuations. Much talked about debt repayment pressure on companies over Mar-
11 seems to have passed away without much notice. Despite the run up, property
stocks are still trading ~40% below their Oct-10 levels (vs. this Sensex is ~8%
off Oct peaks) and valuations remain reasonably accommodative. We continue
to like IBREL/UT given sharp disconnect between asset value and market cap
and JPIN as a potential high cash flow yield (dividend play). In Bangalore we
like Prestige Estates given cheaper valuations, high level of residential pre-sales
and visibility on annuity portfolio.
•Physical fundamentals: Perception vs. Real(i)ty
o Residential- - Absorption holding firm over Jan/Feb contrary to news
flow of slowdown –Gurgaon has been a standout performer registering its
record volumes in Jan/Feb (+50% vs. CY10; +26% Q/Q) over the last 3
years. Other key markets i.e. MMR/Bangalore too have registered a decent
5-10% volume growth except South Mumbai (much highlighted in media)
and Noida/GNoida (off a high base). Pace of new launches at the margin
seem to be the best in NCR, However they have slowed down
meaningfully in Mumbai/Hyderabad/Bangalore as changing political
landscape have made approvals slow to come by. Months of unsold
inventory has remained largely stable across most markets (8-12 months).
o Office- Fundamentals are improving but supply /taxation issues
remains. Office fundamentals have been steadily improving with
absorption CY11 absorption at 40msf (JLLM est.) expected to surpass
earlier peak (~33msf). While NCR and Bangalore have led the revival over
the last year; Hyderabad is expected to outperform in CY11 given strong
pre leasing trends and affordable rents. Rentals have started to inch up in
select markets however a meaningful appreciation is unlikely near term as
supply (60msf in CY11) continues to surpass the demand. Taxation
(MAT/DDT) on SEZ’s as per the budget will also likely impact
profitability of select commercial developers
o Retail: Absorption gaining momentum and rents look to be
improving; despite “oversupply” concerns -2010 marked the beginning
of a meaningful recovery in the retail segment with retailers resuming back
their expansion plans. JLL expects the absorption to strengthen further in
2011 to almost 12msf above the peak level of 9.6msf seen in CY07.
Regarding supply we note that CY10 witnessed <40% of initial supply
estimates coming on-stream thereby resulting in a healthy demand supply
balance. As per C&W, only half of CY11 supply projections may actually
materialize. Lack of quality retail space is still identified as a growth
constraint by a number of retailers
Residential – Absorption remains healthy contrary to
perception of a volume slowdown
Residential volumes across key Indian cities remain healthy over Jan-Feb and have
registered decent Y/Y growth despite investor concerns to the contrary. Gurgaon has
been a standout performer over Jab-Feb registering its record volumes over the last 3
years; while volumes in most other markets (MMR/Bangalore) are up 5-10% Y/Y
with the exception of South Mumbai (most highlighted in media) and Noida (coming
off high base).
Mid income projects seem to be driving the absorption across most markets. While
slew of mid income launches in Gurgaon over the last two quarters have seen healthy
offtake; absorption in distant suburbs in Mumbai (Virar-Vasai/Navi Mumbai/Thane)
too remains fairly buoyant given reasonable price levels.
Even while the demand remains buoyant, new launches have slowed down
meaningfully in Mumbai/Bangalore over Jan/Feb likely on account of approval
delays. Changes in political landscape in key cities Mumbai, Bangalore and
Hyderabad have also made approvals slow to come-by. Mumbai seems to be most
impacted as new launches have been at a standstill pending policy reviews (scrapping
of car parking FSI, reduction in concession area etc).
In terms of overall supply, Gurgaon being the best performing market has seen
inventory declining over past 2Qs despite high launch activity. Months of unsold
inventory in the market is currently at 7 months of trailing 3 months absorption.
Other markets witness fairly stable inventory levels as delay in launches has resulted
in a healthy demand supply balance. Months of unsold inventory stands at 8 months
in Mumbai; while Chennai and Bangalore are at 11-12 months of trailing 3 month
absorption.
In terms of pricing, while Mumbai has started to see price correction; prices in
Gurgaon remained largely stable. Price growth in other markets (Bangalore/Chennai)
remains healthy between 5-10% Y/Y.
In terms of various markets-
1. Gurgaon - Absorption run rate in Gurgaon (at 3,135 units per month) over
Jan/Feb has increased by an impressive 26% Q/Q and is running 50% higher
than CY10 average (2,095 units a month). This is the highest absorption run rate
recorded in Gurgaon in the last 3-4 years. This was primarily aided by strong
response to recent mid income launches. Launch activity (~at over 3,000 units a
month) in the market have picked up meaningfully over the last two quarters
registering a 2-3x increase as compared to 1HCY10 levels (1,300 units a month).
In terms of supply overall months of unsold inventory (at 7 months) has further
declined marginally on the back of strong absorption trends. Key projects
driving the absorption over Jan/Feb include Alpha Corp”s Gurgoan One (440
units sold), Sare’ Group Green Par project (~600 units) and Unitech’s
Sunbreeze/South Park (600 units).
2. Mumbai- Absorption run rate in Mumbai (at 2,817 units a month) has come
down by 7% Q/Q over Jan-Feb primarily due to slow absorption in South
Mumbai (-20% Q/Q) and prime suburbs (-10% Q/Q). Volume in distant
suburbs (like Virar-Vasai, Navi Mumbai, Thane) however remain fairly buoyant
(+0-20% Q/Q) on the back of affordable pricing and new launches. Interestingly,
overall 1QCY11 Mumbai/MMR absorption run rate is running 6-8% higher than
CY10 average as against a sharp decline being talked about in the media reports
(based on registration data). Key projects driving the absorption include HDIL’s
Virar Vasai project (220 units sold in Jan Feb), Hiranandani’s Panvel project
(265 units sold in Jan/Feb) and Lodha’s Casa Rio project in Dombivalli (720
units sold in Jan/Feb). Launches in the market have come down meaningfully
over Jan-Feb (down 10-30% compared to CY10 average) pending policy
reviews in Mumbai. Unsold inventory has remains largely stable at 8 months
Q/Q despite slow absorption trends as launch activity remains muted.
3. Among other NCR markets, residential volumes in Noida/G Noida after
witnessing an astonishing increase in CY10 have come off by 20-30% Y/Y (as
compared to CY10 avg.) given a very high base. Months of unsold inventory (8-
9 months) has started to inch up as absorption slows down while launches
remain high in the micro market.
4. Bangalore – Absorption run rate in Bangalore remains fairly healthy at 2,400
units/month which is 12% higher than CY10 average. On Q/Q basis, the
volumes have come off by 9%; however this follows a 28% increase seen in
Dec-Q (festive demand). Further, launches have been slow in the market due to
approval delays (-26% Q/Q). Price growth in the market has been relatively
modest (5-10%) as against other markets thereby keeping the affordability
healthy. Months of unsold inventory has remained largely stable at 11-12
months.
5. Chennai registered a 62% Q/Q increase in absorption in Dec-Q (Jan/Feb-11 data
note available as yet). Overall volumes for CY10 stood 30% higher than 2009
levels. Launches have picked up meaningfully over the last 2 Qs (+6x from 2Q).
More importantly, months of unsold inventory has come down over the past two
quarters given sharp pick up in absorption (c9 months vs. 12 months in Jun-Q
Policy action – Expect to remain Counter Cyclical.
Over the last one year, policy direction on real estate has been counter cyclical and is
expected to remain so in the medium term. The central bank has largely reversed
back most of the stimulus measures given in 2008 to revive the real estate sector
(please see table below). In general property stocks tends to under perform in the
early stages of rate tightening but as confidence in GDP improves the correlation
breaks down mid to late cycle.
Office recovery on a strong foothold; rentals too improving
at the margin
Leasing activity has picked up meaningfully in 2010 with the absorption levels
recovering the peak 2007-08 levels. Overall for 2010 pan India absorption stood at
33msf as against 20msf in CY09. Going into 2011, most IPCs expect the absorption
to strengthen further to ~40msf – almost double of CY09 levels. JLL expects
absorption to grow at 14% CAGR over CY10-13; though high vacancy (22%) on
account of completing supply will keep rents under check.
In terms of various markets, NCR and Bangalore have been leading the revival over
the last one year . Going into 2011, Bangalore and Hyderabad are expected to
outperform due to good pre leasing and reasonable rentals.
Vacancy level declined across most markets as supply got deferred to CY11 and
demand remains buoyant. Rentals have started to appreciate in select markets in
Bangalore and NCR; while other markets remained largely stable Q/Q. JLL expects
the rentals to start recovering meaningfully from towards end 2011 given positive
absorption trends across most markets. Office investment yields have started to come
down over the last one year (-80-100bps) and currently range from 10%-11%.
Encouraged by encouraging revival over the last two quarters, developers have
started to expedite construction as well as revive few office projects which had been
put on halt over the lat two years due to weak demand. Hence, most markets are
expected to witness large supply in 2011. JLL expects supply of 60 msf in 2011
against estimated absorption of 36msf.
In terms of various markets,
1. NCR continues to register steady increase in office absorption (+36% Q/Q,
+90% Y/Y). Overall 1.9msf was leased in Dec-Q (Gurgaon – 1.5msf; Noida
– 0.3msf) as against 1.4msf/1msf in Sep/Jun-Q. Gurgaon accounted for over
80% of the total absorption. Correspondingly, supply in the market was also
high at 2.9msf (highest in last two years) thereby keeping vacancy levels
largely stable Q/Q. Overall vacancy levels stood at high >30% primarily due
to huge vacant space in Noida (>40%). Rentals have started to inch up esp
in prime Delhi/Gurgaon (up ~5%Q/Q) on the back of improving absorption.
2. Mumbai continues to register healthy leasing run rate with 2.1msf of leases
being concluded in Dec-Q (+10% Q/Q). Leasing run rate in Mumbai has
stabilized at 2msf (double of CY09) over the last four quarters. BFSI sector
accounted for majority of absorption in CY10. Supply during the Q
declined by 50% Q/Q as project completions got deferred to CY11 thereby
resulting in marginal dip in vacancy levels (20%). Rentals remained largely
stable Q/Q across most markets with the exception of CBD as occupiers
shift to quality developments in SBD locations (Bandra/Lower Parel).
3. Bangalore recorded highest absorption across all key markets for the third
consecutive quarter primarily driven by IT/ITeS sector. Dec-Q leasing
stood at 2.4msf thereby taking overall CY10 absorption to 8.1msf against
4.5msf for CY09. Interestingly, Whitefield accounted for close to 40% of
the absorption in Dec-Q on account of low vacancy in ORR market. With
Bangalore market witnessing modest supply of 0.8msf during Dec-Q;
vacancy levels came down to 21% from 23% in Sep-Q. Rentals appreciated
by 5-10% primarily in CBD and SBD markets; while Whitefield and
Electronic City remained stable Q/Q (given high vacancy rates ~>40%).
4. Chennai witnessed an impressive pick up in leasing over the last few
months registering a threefold increase in absorption over Dec-Q. Overall
absorption at 2.2msf (+175% Q/Q) is highest take up recorded over the last
two years. Further with no additional supply becoming operational during
the Q (as projects completions got deferred), vacancy levels declined by
meaningful 500bps during Dec-Q (to 29%). Rentals in CBD/off CBD
appreciated by 5-8% on the back of improving demand trends.
5. Other markets (Hyderabad, Pune, Kolkata) with the exception of
Kolkata too continue to register robust leasing trends. Hyderabad stood out
with Dec-Q leasing at 1.8msf (+211% Q/Q). Rentals and vacancy levels
have largely remained stable Q/Q given high vacancy levels and supply
overhang across most markets.
Retail –Absorption gaining momentum; oversupply
concerns seem to be overstated
2010 marked the beginning of a meaningful recovery in the retail segment as both
domestic and foreign retailers resume back their expansion plans. Further, developers
too have become more accommodative in terms of their asking rents and lease terms
in order to ensure higher occupancy. JLL expects the absorption to strengthen further
in 2011 to almost 12msf above the peak level of 9.6msf seen in CY07.
While oversupply concerns persist in the market (20msf expected to come on stream
in CY11); we note that 2010 witnessed less than 40% of the initial supply estimates
actually materializing (7msf became operational in 2010) by the end of the year.
More importantly; the quality of supply entering the market has been a key concern
for most retailers.
Pre-lease commitments in number of upcoming projects is also quite low due to lack
of proper catchments/concentration in retail developments in the vicinity and slower
execution. These projects are likely to be delayed further due to lack of pre lease
commitments, in our view. As per C&W, only half of the supply projection
(~19.3msf in CY11) may actually materialize by the end of the year.
Deferment of new supply has led to a healthy demand supply balance thereby
keeping the rentals and vacancy levels largely stable Y/Y. While rentals in prime
locations are expected to remain firm; suburban locations could see some downward
pressure due to supply overhang.
Vacancy levels came down marginally to 15.5% from 17% at CY09 end. While mall
rentals are currently 30-45% below their 2007-08 peaks and seem to have bottomed
out; minimum guarantee coupled with revenue share is emerging as favored model of
lease agreement among retailers as well as developers.
In terms various markets
1. NCR witnessed a supply of ~3.6msf in CY10 which is significantly higher
than CY09. However, the supply has been balanced by the demand strength
as new brands/retailers look to establish their presence in the mall capital of
India (Delhi-NCR). Rentals have started to appreciate in prime West Delhi
malls and high street locations; while rentals remain largely stable in other
locations (Noida, Gurgaon).
2. Mumbai has witnessed a meaningful pick up in lease commitments over the
last two Qs. Increasing demand and limited quality supply has resulted in
appreciation in rentals across most micro markets. Rentals in high street
locations and grade A malls have increased by 20-30% over the last year.
While supply pipeline remains sizeable in the market; pre lease
commitments are quite high in these upcoming projects.
3. Bangalore has relatively low retail stock (~1msf) and low vacancy (<1%).
The upcoming mall projects in the city have seen huge take ups from
retailers (high pre lease commitments). The city is expected to be very
active as number of projects become operational in 2011. Rental values
witnessed an increase in both high street locations as well as mall projects
(~10%) and the trend is expected to continue given limited supply.
4. Chennai market witnessed a supply of ~1msf in CY10. New malls (Express
Avenue and Ampa Skywalk) in the city have been launched at high
occupancy levels and have seen encouraging footfalls. Overall vacancy rate
in the city stands at 3.5% and rentals have seen appreciation of 5-7% in
CY10. Demand remains buoyant in the city; however huge supply pipeline
is likely to keep the rentals stable.
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