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Lease volume low, rent higher
Office leasing lost momentum in 3QCY11, declining 17% YoY; the first
YoY decline in seven quarters. Supply moderation continued in 3Q with
office space supply down 30% YoY. With absorption levels running at
99% of the incremental supply for 9mCY11, vacancies have declined and
rentals firmed up by 10-15% from their 2009 lows. Bengaluru office
volumes up 15% YoY CY11 ytd remains the best market – a positive for
Sobha. With supply-demand in balance, rentals should stay firm - DLF will
be key beneficiary.
Subdued office absorption in 3Q
q Office leasing data from Cushman & Wakefield shows that across India office
absorption declined 17% YoY/13% QoQ to 8.2m sf in 3QCY11.
q This is the first office absorption decline in the last seven quarters. For 9mCY11,
office absorption is down 5% YoY to 24.9m sf.
q While most of the cities showed steady absorption trends, Hyderabad declined 68%
YoY to 0.6m sf – possibly attributable to the disturbances in the state over the
Telangana issue. Ex-Hyderabad, absorption declined a lower 6% YoY.
q Bengaluru volumes were flat YoY at 3.2m sf, largely constrained by supply which
has remained low at 22% of 9MCY11 absorption.
q NCR absorption was up 37% YoY to 1.2m sf. For 9MCY11, NCR absorption has been
flat at 4.1m sf. Gurgaon has contributed 2.5m sf and Noida 1.1m sf to absorption.
Supply additions remain low; Vacancy trends mixed
q Supply during 3QCY11 fell 30% YoY/22% QoQ to 8.1m sf. 9MCY11 supply is down
25% to 25.3m sf.
q Incremental absorption to supply ratio was strong at 102% during 3Q. The ratio for
9MCY11 is at 99%, highest ever – putting supply and demand in balance.
q YTD, Bengaluru has contributed for 34% of absorptions against 7% of supply,
bringing vacancies levels down by 5% YTD to 12%.
q Overall vacancy trends were mixed with Bengaluru, Chennai, Pune and Kolkata
reporting a QoQ decline and NCR, Mumbai and Hyderabad reporting an increase.
IT-office rentals stable, Mumbai CBDs weak
q Rental rates were stable QoQ across most micro-markets.
q IT-office rentals have now increased by 10-15% from their lows in NCR, Bengaluru
and Chennai – with Bengaluru rentals now near their 2007/08 peak levels.
q Mumbai rentals were reported flat in Lower Parel but declined in the South Mumbai
CBDs of Nariman Point and Worli by 5% QoQ as shift northwards continues.
Demand-supply balance supports rentals; Prefer DLF
q With Infosys guiding for a flat hiring for next year and sticking to its FY12 hiring
targets, demand for office space is likely to remain stable going forward.
q Overall rentals are 20-30% below 2007-08 peak, unlike well above peak residential
prices. They have room to grow further, should supply continue to remain tight.
q DLF is our preferred play on the office theme with the company earning c.Rs14.5bn
in rentals from its office portfolio and maintaining its 2.5-3m sf leasing target.
q Anantraj, Oberoi and Sobha also benefit from their commercial business exposure
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lease volume low, rent higher
Office leasing lost momentum in 3QCY11, declining 17% YoY; the first
YoY decline in seven quarters. Supply moderation continued in 3Q with
office space supply down 30% YoY. With absorption levels running at
99% of the incremental supply for 9mCY11, vacancies have declined and
rentals firmed up by 10-15% from their 2009 lows. Bengaluru office
volumes up 15% YoY CY11 ytd remains the best market – a positive for
Sobha. With supply-demand in balance, rentals should stay firm - DLF will
be key beneficiary.
Subdued office absorption in 3Q
q Office leasing data from Cushman & Wakefield shows that across India office
absorption declined 17% YoY/13% QoQ to 8.2m sf in 3QCY11.
q This is the first office absorption decline in the last seven quarters. For 9mCY11,
office absorption is down 5% YoY to 24.9m sf.
q While most of the cities showed steady absorption trends, Hyderabad declined 68%
YoY to 0.6m sf – possibly attributable to the disturbances in the state over the
Telangana issue. Ex-Hyderabad, absorption declined a lower 6% YoY.
q Bengaluru volumes were flat YoY at 3.2m sf, largely constrained by supply which
has remained low at 22% of 9MCY11 absorption.
q NCR absorption was up 37% YoY to 1.2m sf. For 9MCY11, NCR absorption has been
flat at 4.1m sf. Gurgaon has contributed 2.5m sf and Noida 1.1m sf to absorption.
Supply additions remain low; Vacancy trends mixed
q Supply during 3QCY11 fell 30% YoY/22% QoQ to 8.1m sf. 9MCY11 supply is down
25% to 25.3m sf.
q Incremental absorption to supply ratio was strong at 102% during 3Q. The ratio for
9MCY11 is at 99%, highest ever – putting supply and demand in balance.
q YTD, Bengaluru has contributed for 34% of absorptions against 7% of supply,
bringing vacancies levels down by 5% YTD to 12%.
q Overall vacancy trends were mixed with Bengaluru, Chennai, Pune and Kolkata
reporting a QoQ decline and NCR, Mumbai and Hyderabad reporting an increase.
IT-office rentals stable, Mumbai CBDs weak
q Rental rates were stable QoQ across most micro-markets.
q IT-office rentals have now increased by 10-15% from their lows in NCR, Bengaluru
and Chennai – with Bengaluru rentals now near their 2007/08 peak levels.
q Mumbai rentals were reported flat in Lower Parel but declined in the South Mumbai
CBDs of Nariman Point and Worli by 5% QoQ as shift northwards continues.
Demand-supply balance supports rentals; Prefer DLF
q With Infosys guiding for a flat hiring for next year and sticking to its FY12 hiring
targets, demand for office space is likely to remain stable going forward.
q Overall rentals are 20-30% below 2007-08 peak, unlike well above peak residential
prices. They have room to grow further, should supply continue to remain tight.
q DLF is our preferred play on the office theme with the company earning c.Rs14.5bn
in rentals from its office portfolio and maintaining its 2.5-3m sf leasing target.
q Anantraj, Oberoi and Sobha also benefit from their commercial business exposure
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