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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Property
India
Commercial rental recovery still some time away. Demand for India-wide office
space/commercial property has bounced back post a growth scare-led dip in CY2009
and is expected to grow a further 20% in CY2011E. However, with supply continuing
to outstrip demand, we believe it is unlikely that lease rates will appreciate
meaningfully. A slowdown in SEZ supply (28% of potential supply to CY2013E) due to
tax uncertainty could be a potential favorable impact on the demand-supply equation.
Demand has remained healthy in the cycle and will likely remain so driven by the IT/ITES segment
Post a dip in CY2009 to 20 mn sq. ft (top 7 cities), demand for office space/commercial property
bounced back to 31 mn sq. ft in CY2010 and is expected to increase 20% to 36 mn sq. ft in
CY2011E. Demand growth has largely been driven by the IT/ITES industry which accounts for 40-
50% of total annual demand. Our IT services research team expects the total number of IT
employees to grow 16% over FY2011-13E in line with the CAGR over FY2008-11. We do not
believe though that we could see a further acceleration—our economist team now expects real
GDP growth of 7.3% in FY2012E and a CAGR of 7.6% over FY2011-3E which is similar to CAGR
of 7.7% over FY2008-11.
However, supply will continue to outstrip demand leading to rising vacancy levels
Fresh supply of completed office/commercial property is expected to increase from 41 mn sq. ft in
CY2010 to 55 in CY2011E and 58 in CY2012E. This will likely lead to vacancy rates continuing to
increase till CY2012E and peak at 23% with a possible demand-supply balance in 2013E. 76% of
potential CY2011E supply is either completed or ready for fit-outs indicating that there is no
significant delay in supply in CY2011E. However, 29% (38 mn sq. ft) of this cumulative potential
supply is IT SEZ supply which if delayed due to uncertainty on taxation norms would be a potential
favorable impact on the demand-supply balance.
Vacancy rates peaking only in CY2012E will likely prevent any price rise
With vacancies yet to peak, we do not believe rental rates will see any significant uptick, at least
until end-FY2012E and even then would depend upon potential delay in IT SEZ supply. Among the
various geographies, Mumbai rentals are expected to remain flat (high supply) while Bengaluru
rentals are expected to increase by 7.5% over the next one year.
Be selective – Sobha, Oberoi and Phoenix Mills are our top picks
We continue to recommend a selective approach as (1) funding is still constrained and our
discussions with companies and other sector participants lead us to believe that raising equity at
the entity level remains a near-impossible task while raising debt has also become more difficult
and effective borrowing costs have increased, (2) impact on developers and consequently prices
could be felt with a lag (coming festive season in 3QFY12E could be critical) and (3) companyspecific
risks continue to remain high. Oberoi, Phoenix and Sobha are our top picks as we believe
they are relatively insulated (Oberoi – net cash, Phoenix – retail, Sobha – Bengaluru residential) and
have potential upside (Oberoi – NAV accretive land purchases, Phoenix – three mall openings in
FY2012E and Sobha – launch of large projects in Bengaluru and Gurgaon).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Property
India
Commercial rental recovery still some time away. Demand for India-wide office
space/commercial property has bounced back post a growth scare-led dip in CY2009
and is expected to grow a further 20% in CY2011E. However, with supply continuing
to outstrip demand, we believe it is unlikely that lease rates will appreciate
meaningfully. A slowdown in SEZ supply (28% of potential supply to CY2013E) due to
tax uncertainty could be a potential favorable impact on the demand-supply equation.
Demand has remained healthy in the cycle and will likely remain so driven by the IT/ITES segment
Post a dip in CY2009 to 20 mn sq. ft (top 7 cities), demand for office space/commercial property
bounced back to 31 mn sq. ft in CY2010 and is expected to increase 20% to 36 mn sq. ft in
CY2011E. Demand growth has largely been driven by the IT/ITES industry which accounts for 40-
50% of total annual demand. Our IT services research team expects the total number of IT
employees to grow 16% over FY2011-13E in line with the CAGR over FY2008-11. We do not
believe though that we could see a further acceleration—our economist team now expects real
GDP growth of 7.3% in FY2012E and a CAGR of 7.6% over FY2011-3E which is similar to CAGR
of 7.7% over FY2008-11.
However, supply will continue to outstrip demand leading to rising vacancy levels
Fresh supply of completed office/commercial property is expected to increase from 41 mn sq. ft in
CY2010 to 55 in CY2011E and 58 in CY2012E. This will likely lead to vacancy rates continuing to
increase till CY2012E and peak at 23% with a possible demand-supply balance in 2013E. 76% of
potential CY2011E supply is either completed or ready for fit-outs indicating that there is no
significant delay in supply in CY2011E. However, 29% (38 mn sq. ft) of this cumulative potential
supply is IT SEZ supply which if delayed due to uncertainty on taxation norms would be a potential
favorable impact on the demand-supply balance.
Vacancy rates peaking only in CY2012E will likely prevent any price rise
With vacancies yet to peak, we do not believe rental rates will see any significant uptick, at least
until end-FY2012E and even then would depend upon potential delay in IT SEZ supply. Among the
various geographies, Mumbai rentals are expected to remain flat (high supply) while Bengaluru
rentals are expected to increase by 7.5% over the next one year.
Be selective – Sobha, Oberoi and Phoenix Mills are our top picks
We continue to recommend a selective approach as (1) funding is still constrained and our
discussions with companies and other sector participants lead us to believe that raising equity at
the entity level remains a near-impossible task while raising debt has also become more difficult
and effective borrowing costs have increased, (2) impact on developers and consequently prices
could be felt with a lag (coming festive season in 3QFY12E could be critical) and (3) companyspecific
risks continue to remain high. Oberoi, Phoenix and Sobha are our top picks as we believe
they are relatively insulated (Oberoi – net cash, Phoenix – retail, Sobha – Bengaluru residential) and
have potential upside (Oberoi – NAV accretive land purchases, Phoenix – three mall openings in
FY2012E and Sobha – launch of large projects in Bengaluru and Gurgaon).
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