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Weakening macro environment weighed on the commercial property, as
demand for office space across the six key cities pulled back to 8.5mn sq
ft (down 20% q-q) in 3QCY11, after witnessing strong demand of 10.5
mn sq ft in the last quarter. Most of the demand came from absorption of
current available supply rather than pre-commitments. In fact, precommitments
during the quarter hit the lowest level since 1Q08, which to
us suggests corporates are uncertain about their future plans. On the
supply side, as developers continue to preserve cash and spend less on
construction of commercial property, new supply remained lower at 7.6
mn sq ft (-13% q-q, -33% y-y). With demand matching supply, overall
vacancy continues to remain at higher level, keeping rentals flat.
Separately, property consultants cited better demand for SEZ space as
corporates locked space to avail fiscal benefits that expires in 2014.
The total YTD supply of 22.3mn sq ft or ~30 mn sq ft on an annualised
basis, is likely to fall short of property consultants’ estimate of ~40mn sq
ft for the full year. On the back of slowing demand and lower availability
of liquidity with the developers, we expect more developers to cancel
their development plans. With demand (~27.4mn sq ft) having
outstripped supply (~22.3 mn sq ft) YTD and with more cancellations of
future supply coming through, we expect vacancy to fall and rental to
move upwards in the next two years.
In terms of different cities, Bangalore, Hyderabad and Chennai appear
better placed as compared to other markets such as Mumbai, Pune and
NCR, which are impacted by oversupply situation. As highlighted
previously, in our view, Bangalore is best positioned for rental growth as:
1) demand continues to remain buoyant; 2) vacancy dipped further lower
to 12% after demand outstripped supply for the fifth consecutive quarter
and 3) new construction starts remain limited, despite lower supply
(~15.5 mn sq ft) under construction.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Weakening macro environment weighed on the commercial property, as
demand for office space across the six key cities pulled back to 8.5mn sq
ft (down 20% q-q) in 3QCY11, after witnessing strong demand of 10.5
mn sq ft in the last quarter. Most of the demand came from absorption of
current available supply rather than pre-commitments. In fact, precommitments
during the quarter hit the lowest level since 1Q08, which to
us suggests corporates are uncertain about their future plans. On the
supply side, as developers continue to preserve cash and spend less on
construction of commercial property, new supply remained lower at 7.6
mn sq ft (-13% q-q, -33% y-y). With demand matching supply, overall
vacancy continues to remain at higher level, keeping rentals flat.
Separately, property consultants cited better demand for SEZ space as
corporates locked space to avail fiscal benefits that expires in 2014.
The total YTD supply of 22.3mn sq ft or ~30 mn sq ft on an annualised
basis, is likely to fall short of property consultants’ estimate of ~40mn sq
ft for the full year. On the back of slowing demand and lower availability
of liquidity with the developers, we expect more developers to cancel
their development plans. With demand (~27.4mn sq ft) having
outstripped supply (~22.3 mn sq ft) YTD and with more cancellations of
future supply coming through, we expect vacancy to fall and rental to
move upwards in the next two years.
In terms of different cities, Bangalore, Hyderabad and Chennai appear
better placed as compared to other markets such as Mumbai, Pune and
NCR, which are impacted by oversupply situation. As highlighted
previously, in our view, Bangalore is best positioned for rental growth as:
1) demand continues to remain buoyant; 2) vacancy dipped further lower
to 12% after demand outstripped supply for the fifth consecutive quarter
and 3) new construction starts remain limited, despite lower supply
(~15.5 mn sq ft) under construction.
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