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India Equity Research Reports, IPO and Stock News
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Leasing momentum continues
Office leasing momentum has continued in 2QCY11 with a 31% QoQ rise
in office absorption leading to a record 2Q. Meanwhile supply moderation
has also continued in 2QCY11. For 1HCY11, office supply is down 22%
leading to absorption rates matching supply. The consequent decline in
vacancy rates, particularly at good quality offices/IT-SEZs, is leading to
strength in rentals - up an average 10% YoY now. The Southern markets,
led by Bengaluru, continue to lead leasing activity which would be a
positive for the city developers viz. Sobha. DLF is our preferred large cap
on the theme as it looks to enjoy rental appreciation on its 24m sf leased
asset portfolio.
Strong office absorption trends continue in 2Q
q Office leasing data from Cushman & Wakefield shows that across India office
absorption increased 3% YoY/31% QoQ to 9.5m sf in 2QCY11.
q Supply fell 23% YoY to 10.4m sf, with 58% coming from Mumbai and Pune.
q Absorption to supply ratio was strong at 91% for 2Q and record 97% for 1HCY11.
Southern markets strong, vacancies down
q The three Southern cities of Bengaluru, Chennai and Hyderabad have accounted for
55% of India wide office absorption vs 20% of the supply in 1HCY11.
q Consequently, vacancy rates are down by 0-3ppt here since December.
q NCR has seen matching between absorption and supply during 1H.
q Mumbai and Pune saw a supply spurt in 2Q leading to higher vacancies there – up
2ppts to 22% and 4ppts to 29% respectively.
Rentals moving up in most locations
q Rental rates firmed up in Bengaluru and Chennai by an average of 5% QoQ on a
declining vacancy trend.
q While Gurgaon reported a small 2% QoQ increase in rentals; Hyderabad and Noida
have reported stable rentals.
q Overall rentals for IT office buildings across NCR and South are now up 10-15%
from their lows and should remain firm as demand continues to hold.
q Mumbai saw an increase in BKC rentals, though continued supply pressures have
kept Lower Parel rentals at their lows.
q The upward movement in rentals notwithstanding; rentals are still 20-25% below
2007/2008 peak – a contrast to above peak residential prices – and have room to
grow further.
Prefer DLF for office exposure
q With the office space leasing market continuing to remain strong, we prefer
developers with exposure to the sector.
q DLF is our top pick as the company looks to lease a further 2.5-3.0m sf during
FY12. It should also benefit from a rise in rentals.
q Amongst mid-caps; Anantraj, Oberoi and Sobha will benefit from their commercial
business exposure.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Leasing momentum continues
Office leasing momentum has continued in 2QCY11 with a 31% QoQ rise
in office absorption leading to a record 2Q. Meanwhile supply moderation
has also continued in 2QCY11. For 1HCY11, office supply is down 22%
leading to absorption rates matching supply. The consequent decline in
vacancy rates, particularly at good quality offices/IT-SEZs, is leading to
strength in rentals - up an average 10% YoY now. The Southern markets,
led by Bengaluru, continue to lead leasing activity which would be a
positive for the city developers viz. Sobha. DLF is our preferred large cap
on the theme as it looks to enjoy rental appreciation on its 24m sf leased
asset portfolio.
Strong office absorption trends continue in 2Q
q Office leasing data from Cushman & Wakefield shows that across India office
absorption increased 3% YoY/31% QoQ to 9.5m sf in 2QCY11.
q Supply fell 23% YoY to 10.4m sf, with 58% coming from Mumbai and Pune.
q Absorption to supply ratio was strong at 91% for 2Q and record 97% for 1HCY11.
Southern markets strong, vacancies down
q The three Southern cities of Bengaluru, Chennai and Hyderabad have accounted for
55% of India wide office absorption vs 20% of the supply in 1HCY11.
q Consequently, vacancy rates are down by 0-3ppt here since December.
q NCR has seen matching between absorption and supply during 1H.
q Mumbai and Pune saw a supply spurt in 2Q leading to higher vacancies there – up
2ppts to 22% and 4ppts to 29% respectively.
Rentals moving up in most locations
q Rental rates firmed up in Bengaluru and Chennai by an average of 5% QoQ on a
declining vacancy trend.
q While Gurgaon reported a small 2% QoQ increase in rentals; Hyderabad and Noida
have reported stable rentals.
q Overall rentals for IT office buildings across NCR and South are now up 10-15%
from their lows and should remain firm as demand continues to hold.
q Mumbai saw an increase in BKC rentals, though continued supply pressures have
kept Lower Parel rentals at their lows.
q The upward movement in rentals notwithstanding; rentals are still 20-25% below
2007/2008 peak – a contrast to above peak residential prices – and have room to
grow further.
Prefer DLF for office exposure
q With the office space leasing market continuing to remain strong, we prefer
developers with exposure to the sector.
q DLF is our top pick as the company looks to lease a further 2.5-3.0m sf during
FY12. It should also benefit from a rise in rentals.
q Amongst mid-caps; Anantraj, Oberoi and Sobha will benefit from their commercial
business exposure.
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