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Property
India
Bengaluru: commercial today, residential tomorrow. Bengaluru absorbed 11.7 mn
sq ft of commercial space in CY2011, 33% of the overall absorption of India’s top
seven cities. Strong demand for commercial space augurs well for residential volumes in
coming years. In CY2011 Bengaluru created 0.12 mn (assuming 100 sq ft of space per
person) future customers for residential space, who can potentially consume 70 mn sq
ft (1,200 sq ft per person assuming 50% will buy) of residential space in coming years.
CY2011 residential absorption of 49 mn sq ft was more than any Indian city. BUY
Sobha with a target price of Rs360.
Bengaluru commercial absorption: highest among top seven cities in CY2011
Bengaluru absorbed 11.7 mn sq. ft (+15% yoy) of commercial space in CY2011, 33% of the total
absorption in the top seven cities in India. In contrast, NCR and Mumbai were relatively muted at
6.2 (+8% yoy) mn sq. ft and 4.1 mn sq. ft. (-6% yoy) respectively. Bengaluru outperformed as it is
an IT hub and IT/ITES absorbed 35% of the commercial space across the top seven Indian cities.
Demand to outstrip upcoming supply in Bengaluru: low vacancies; rising rentals
Bengaluru is likely to add 22-23 mn sq. ft of commercial space over CY2012-14, implying demand
will outpace supply, leading to lower vacancies and rising rentals. Vacancy (Bengaluru) in 4QCY11
at 11%, already among the lowest in India, is set to fall further to 8% in CY2013E, as per JLL.
Rentals should maintain an upward trend over CY2012E-14E. As per JLL, Bengaluru commercial
rentals will increase by 5% and 7% yoy in CY2012E and CY2013E, respectively. As per NASSCOM,
IT headcount is set to grow by 10% in FY2013, which augurs well for commercial demand by
IT/ITES, especially in Bengaluru.
Commercial absorption is a lead indicator of residential sales; Bengaluru to remain strong
Strong demand for commercial space augurs well for residential volumes in the coming years. In
CY2011, Bengaluru created 0.12 mn (assuming 100 sq ft of space per person) future customers
for residential space, who can potentially consume 70 mn sq ft (1,200 sq ft per person assuming
50% will buy) of residential space. This is equal to 1.5 years of demand, going by the current
absorption rate of 49 mn sq. ft in CY2011. Residential sales have been steady in Bengaluru at 4-
5mn sq ft/month in CY2011, which is 20% of total sales in India’s top seven cities.
Strong Bengaluru market: Prestige and Sobha stand to benefit
Prestige, due to its large commercial portfolio, and Sobha, due to its dominance in the residential
market, would be beneficiaries of this trend. BUY Sobha with a target price of Rs360
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