C&W India Real Estate Outlook 2009

OUTLOOK 2009INDIA REAL ESTATE OVERVIEW

A CUSHMAN & WAKEFIELD RESEARCH PUBLICATION MARCH 2009

CONTENTS

Executive Summary 1

India Economic Outlook 2

Realty Sector Outlook 4

Mumbai Market Outlook 6

NCR Market Outlook 12

Bangalore Market Outlook 17

Pune Market Outlook 22

Chennai Market Outlook 27

Hyderabad Market Outlook 32

Kolkata Market Outlook 37

Ahmedabad Market Outlook 42

End Notes 46

The year 2008 proved to be quite eventful for India's realty

sector. Following the boom of the past couple of years, the

sector was faced with the beginning of a downturn. Perhaps

'turbo-coupled' (the 'de-coupled' theory having rendered

passé by now) with the global economy, by mid-2008 the

effects of the US sub-prime crisis together with the stock

market crash had reached Indian shores. Evaporating liquidity

and gradually disappearing demand for real estate spaces lead

to corrections in prices across all asset classes by end-2008.

Tier-II and III cities and towns experienced a relatively lesser

impact of the economic downturn in 2008.

The realty sector is currently facing significant trouble on

declining housing sales and unavailability of finances. Under the

circumstances, as investment capacity gets impacted, large

volumes of high-priced residential stock (as also, the supply

pipeline) will need to re-align pricing. There is a likelihood of

continued delay in execution of on-going projects as well as

postponement of newer developments in the housing sector.

The total supply for commercial office space across the top 1

eight cities of India in 2008 was approximately 60 million sq.ft.

(about 34% higher than the previous year), with SEZ supply

recorded at approximately 19.3 million sq. ft. Commercial

office space absorption across the top cities increased by

EXECUTIVE SUMMARY

nearly 6% in 2008, with almost 30% of this space take-up

being dominated by pre-commitments from last year. Fresh

pre-commitments made in 2008 amounted to 12.8 million

sq. ft., a 45% drop from 2007.

A considerable difference between supply and absorption,

however, led to rising vacancy rates across all micro-markets,

causing significant rental corrections in the year. Though the

total office supply projection for 2009 is approximately 88

million sq.ft., Cushman & Wakefield Research estimates only

about 50 million sq. ft. to get delivered by end-2009.

On the retail front, the year saw an approximately 17%

increase in mall supply over 2007 at India's top metropolitan

centres. But at 9.6 million sq. ft., it was a substantial shortfall,

of more than 50%, from mall supply projections made earlier.

Despite shortfall in mall supply, vacancy rates remained at a

national average of 9%, suggesting that most malls were

finding it difficult to manage operational costs. By mid-2008,

the supply shortage compounded by a demand slowdown had

pushed down rentals, which fell significantly across most

micro-markets. The correction in 2009 will in all likelihood

reach the non-metros, as the ripple effect of the economic

downturn reach tier-II and III locations.

1 Mumbai, NCR, Bangalore, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad

1

Source: www.dippnic.in

INDIA ECONOMIC OUTLOOK

2

The Indian economy experienced a setback in 2008 after

registering a robust growth pattern over the last couple of

years. India's GDP growth, which was recorded at 9% in 2007-

08, saw a downward trend in 2008-09 and is estimated to 1

reach around 7% in 2009-10 . In spite of this decline, it still

remains the second fastest growing economy in the world.

The country's growth drivers in the past few years have

remained the agriculture, services, manufacturing, trade as well

as the construction sectors.

Inflation reached an all time high of 13% in August 2008 which

triggered the RBI to address the issue by raising the Cash

Reserve Ratio (CRR), Repo and Reverse Repo Rates. As the

cash crunch gained prominence, affecting growth rate and end

user demand, fiscal stimuli were infused into the economy for

curbing inflation by the end of the year (from 13% in mid-1

2008 inflation fell to 5% by end-2008) .

The real estate sector was greatly affected in 2H 2008 in light

of testing economic times. As the tremors of the US recession

trickled to affect the home markets, banks and financial

institutions alike turned apprehensive of funding projects that

were earlier nurtured by foreign institutional investors (FIIs).

This resulted in the slowing down of several developments

that were under progress as well as the deferment of supply

for the year. The corporate sector too remained cautious and

restricted themselves from the aggressive expansion plans

they had nurtured thus far. Correcting rentals for commercial

properties along with the attractive offers and easy leasing

terms being offered by developers stood testimony to the

slackness in demand for commercial space. The residential

segment too saw investors and speculators exiting the market,

making way for primary home buyers who anticipated further

corrections and more realistic and affordable price points. The

turn of events through the year, have put the tenant back in

the power seat as he holds the negotiation key in the realty

markets today.

Infrastructure development has always remained the focus of

the Indian government with planned projects such as the

Delhi Mumbai Industrial Corridor (DMIC), the Elevated

Expressway in Bangalore connecting Hosur Road to

Electronics City and several airport projects across the

country that are underway. Public Private Partnerships (PPP)

too have proved to be a successful model for various projects

ranging from mass rapid transport systems (MRTS) and roads

to airports and sea ports.

Since the opening up of the real estate sector in 2005, Private

Equity (PE) funds in India have been very active. A large

number of transactions have been recorded in the past three

years at entity, portfolio and Special Purpose Vehicle (SPV)

level. According to the Indian Department of Industrial Policy

and Promotion (DIPP), there has been a substantial amount of

FDI inflow into the housing and Real Estate (RE) sector, with

approximately 78% of last year's inflows already having been

accumulated during the first six months of FY 2008-09. Given

the current global and domestic economic situation in which

the Indian realty sector has been affected too, 2H 2008 hardly

witnessed any FDI inflows.

Foreign Direct Investment (FDI)

1 Interim Budget 2009 - 10 by Govt. of India (http://indiabudget.nic.in/)

Investm

ent (I

NR

mill

ion)

FDI inflow in Housing & Real Estate Sector

0

20,000

40,000

60,000

80,000

100,000

Apr 05 - Mar 06

Apr 06 - Mar 07

Apr 07 - Mar 08

Apr 08 - Sept 08

Policy Changes & Impact

The year 2008-09 witnessed several announcements by the

central government pertaining to policy changes as measures

to curb inflation and to combat the effect of the global

deleveraging on the nation's economy. Recommendations

form various industries in these troubled times necessitated

the government to take measures by formulating and altering

fiscal policies and stimulus packages to steer clear off

troubled waters.

�The Maharashtra government took a bold step by granting

100% extra Floor Space Index (FSI) in IT/ ITeS Parks to be

used for financial services such as banks, insurance

companies and securities within the IT Parks.

�The policy on External Commercial Borrowing (ECB) was

also reviewed by the Reserve Bank of India (RBI) to

provide the required momentum to the realty market. It

Residential

Retail

Commercial

Investor/Fund SPV Parent Company Kind of development Location of the project Proposed Investment

Citigroup Venture Indu Projects Residential project Hyderabad Invested USD 50 million

Capital International

ICICI Prudential PMSI DS Kulkarni Developers Residential project Bangalore Invested INR 35 crore

Real Estate Portfolio

HDFC AMC Ansal Properties & Residential project NOIDA Invested INR 236 crore/

Infrastructure USD 55 million

Westport Capital, Alliance Group Residential project Hyderabad Invested USD 100 million

US based firm

Red Fort Capital Indu Projects Residential project Hyderabad Invested INR 220 crore

Investor/Fund SPV Parent Company Kind of development Location of the project Proposed/Invested Investment

Yatra Capital Palladium Constructions Retail cum residential Bangalore Invested INR 111.62

building complex crore

Triangle India Real Provogue (India) Ltd Retail Aurangabad, Indore, Proposed INR 457 crore

Estate Fund Nagpur and Jaipur

Investor/Fund SPV Parent Company Kind of development Location of the project Proposed/Invested Investment

TAIB Logix TechnoPark IT Park NOIDA Invested USD 69 million

Citi Property Investors BPTP IT Park Gurgaon Invested USD 160 million

Red Fort Capital Godrej Properties IT Park Kolkata Invested NA

Yatra Capital Riverbank Holdings Pvt. Ltd IT SEZ Kolkata Invested INR 115 crore

DE Shaw HDIL IT Park Mumbai Invested USD 250 million

/Invested

INDIA ECONOMIC OUTLOOK

3

Private Equity (PE) Deals

Though economic factors were challenging in 2008, it

remained a successful year for the global private equity

industry as the first half of the year witnessed significant

activity in this area too. According to Private Equity

Intelligence (PREQIN), the year 2008 was globally the second

highest fund-raising year in the history of the industry. India

too registered significant investment in the first half of 2008

while the last quarter has been affected the most with

substantial projects being shelved. A few of the representative

PE deals in 2008 across various asset classes are listed below:

allowed corporate entities engaged in the development of

integrated townships, hotels, hospitals and non-banking

financial companies exclusively financing infrastructural

projects to avail ECBs under the approval route.

�Housing loans to individuals carrying a risk weightage of

50% was increased from INR 2 million to INR 3 million

�There was a decrease in stamp duty charges in states such

as Delhi, UP, Haryana etc.

�The sunset clause on Software Technology Parks of India st

(STPI) benefits was extended for a year till 31 March 2010

�The government also allowed the rescheduling of bank

debt without it being classified as NPL (Non Performing

Loans)

Source: Cushman & Wakefield Research

2007 2008

Are

a (

mill

ion s

q. ft.)

Office Absorption

0

2

4

6

8

10

12

14

16

Ah

me

da

ba

d

Ba

ng

alo

re

Ch

en

na

i

Hyd

era

ba

d

Ko

lka

ta

Mu

mb

ai

NC

R

Pu

ne

2007 2008

Are

a (

mill

ion s

q. ft.)

Office Supply

0

2

4

6

8

10

12

14

16

Ah

me

da

ba

d

Ba

ng

alo

re

Ch

en

na

i

Hyd

era

ba

d

Ko

lka

ta

Mu

mb

ai

NC

R

Pu

ne

REALTY SECTORAL OUTLOOK

4

Commercial Office Space

The total supply for commercial office space across the top

eight cities of India in 2008 was approximately 60 million sq.ft.

While this was about 34% higher than supply of the previous

year, it was also 24% less than the office supply projected for

2008 at the beginning of the year. Delhi NCR accounted for

the highest supply (14.07 million sq.ft) in 2008, followed by

Bangalore, Chennai and Mumbai. These four metropolitan

centres together accounted for nearly 74% of the total office

supply across the major cities. SEZ supply for the year was

recorded at approximately 19.3 million sq. ft., with Bangalore

accounting for the highest SEZ supply (5.71 million sq.ft),

followed by Pune (4.1 million sq.ft) and Chennai (3.87 million

sq.ft).

Commercial office space absorption across major cities

increased by nearly 6% in 2008 with almost 30% of the total

dominated by pre-commitments from previous years. Delhi

NCR saw nearly 5.86 million sq. ft. of pre-commitments for

projects due in 2009, the highest among all major cities. Fresh

pre-commitments for the year (to be absorbed by 2009)

amounted to 12.8 million sq. ft., which was a 45% drop from

that of 2007 and stands testimony to the cautious expansion

plans from the corporate sector in this current overcast

economic climate. With fresh pre-commitments having

declined in 2008 over 2007, the impact will certainly be felt in

the space absorption trends of 2009.

Retail Space

Though the year 2008 saw approximately 17% increase in

mall supply over 2007 at India's top metropolitan centres

at 9.6 million sq. ft., it was still a significant shortfall, in

excess of 50% from earlier mall supply projections. The

average mall vacancy rate for the top seven cities (see table

below) stood at 9% in 4Q 2008, with Delhi NCR witnessing

the highest mall vacancy rate, suggesting that most malls

across India were finding it difficult to manage their

operational costs. This was largely due to uneven distribution

of mall space in the major cities, where mall supply has been

concentrated within a single district targeting same or similar

consumer profiles. From the retailers' point of view, the

preference largely remained for premium high streets over

malls, further aggravating the situation. In 2008 the highest

level of vacancy was witnessed in NCR (24%) and Pune (15%),

while the lowest vacancy level was witnessed in Chennai at

approximately 1%.

City Vacancy Locations Rental %

Rate in Change

4Q 08 Over 1 Yr

NCR 24%

Main Street CP/Karol Bagh/Basant Lok -16%

Mall West Delhi -27%

PUNE 15%

Mall Ganeshkhind Road -14%

Main Street MG Road -13%

MUMBAI 10.20%

Mall Lower Parel -27%

Mall Vashi -17%

KOLKATA 5.60%

Main Street Theatre Road -15%

Main Street Park Street -9%

Mall South Kolkata -7%

HYDERABAD 4.70%

Main Street Banjara Hills -29%

Mall Banjara Hills, Road No. 1 -20%

BANGALORE 3%

Main Street Sampige Road, Malleswaram -28%

Main Street MG Road -25%

CHENNAI 1.30%

Main Street Anna Nagar, 2nd Avenue -33%

Main Street Cathedral Road, RK Salai -33%

Price Fluctuations in Major Markets




REALTY SECTORAL OUTLOOK

5

Over the last six months quality real estate supply shortage,

compounded by a demand slowdown in the segment, has

pushed down rentals which are likely to witness a further

drop in the coming quarters of 2009. The last quarter of 2008,

especially, recorded a fall across main streets and malls in

most micro-markets; with rentals likely to see further

weakening in the short- to mid-term.

2007 2008

Are

a (

mill

ion s

q.ft.)

Mall Supply 2007-08

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Ah

me

da

ba

d

Ba

ng

alo

re

Ch

en

na

i

Hyd

era

ba

d

Ko

lka

ta

Mu

mb

ai

NC

R

Pu

ne

Residential Space

The beginning of 2008 saw a strong real estate market with

luxury residential projects being launched by both established

and new developers. However, demand witnessed a serious

set back across markets in the country with constrained

consumer spending in light of the downturn. The initial signs

of weakness were seen in 3Q 2008, with the consumers

being courted with discounts and freebies such as free cars,

parking space, fit-outs, pre-EMI payments, gold and even free

vacations.

The astute individual investors seeing the first signs of

weakness started to exit the realty market and the gap

widened further in the Indian housing sector. As exiting

investors started to off-load projects, there was an apparent

disparity in the rates being offered by developers and the

ones available in the secondary market.

City Values Locations % Change

Over 1 Yr

AHMEDABAD

High End Capital Navarangpura -13%

BANGALORE

High End Capital Koramangala, Outer -10%

Ring Road

Mid End Capital Marathhalli, Whitefield, -17%

Airport Road

Mid End Rental Koramangala, Jakkasandra -10%

CHENNAI

High End Rental Nungambakkam, 0%

Anna Nagar, Kilpauk

HYDERABAD

High End Capital West & East Marredpally -5%

Mid End Rental Himayathnagar -13%

KOLKATA

High End Capital Salt Lake -5%

High End Rental Ballygunge, Queens Park, -12%

Gurusaday Road

MUMBAI

High End Capital Powai -15%

Mid End Capital Worli, Prabhadevi, -18%

Lower Parel/Parel, Powai

High End Rental Malabar Hill, Breach Candy, -19%

Pedder Road, etc.

Mid End Rental Andheri (W), -24%

Malad, Goregaon

NCR

High End Capital Noida -5%

Mid End Capital Gurgaon -10%

PUNE

High End Capital Wanowrie -20%

Mid End Capital Wakad -15%

High End Rental Wanowrie -21%

Mid End Rental Aundh -20%

By the year-end one could see the correction rolling in on the

cities that had seen the highest percentage increase in values

during the bull-run and across the nation the most overheated

micro-markets saw the deepest of corrections from their peak

values.

Price Fluctuations in Key Markets



COMMERCIAL

In 2008, Mumbai witnessed a total supply of approximately

9.48 million sq.ft. which was the highest single year

development in the city in the last 5 years. However this was

still well short of the total anticipated supply in the beginning

of the year which was expected to be approximately 18 million

sq.ft., most of which is now deferred to 2009. The deferment

in supply can be attributed to the constrained availability of

finances to real estate developers as well as subdued pre-

commitments in upcoming projects from IT/ITeS and BFSI

(Banking Financial Services Insurance) sectors, which have

been the principal drivers of office space demand in the city.

Majority of supply in 2008 was concentrated in suburban

locations of Bandra (2.34 million sq.ft.), Andheri (2.14 million

sq.ft.) and Malad (1.80 million sq.ft.). CBD and Off CBD

(Worli) locations did not witness any new supply due to

limited opportunities for new developments in these locations.

The ongoing mill land redevelopment at Lower Parel resulted

Sectorwise Absorption Trend - 2008

29%43%

16%3%3%2%2%

2%

IT/ITeS BFSI Others Construction

Media Aviation Pharmaceuticals Manufacturing

Commercial

Micro Market

Maximum Rental Correction

Maximum Rental Growth

Retail

Micro Market



Residential

Micro Market

Maximum Value Correction High End

Maximum Value Growth High End

Sanjay Gandhi

National Park

Vasai Creek

Bhiwandi

NAVI

MUMBAI

Kolkhe

Village

Shedung

Village

Colaba

Nariman

Point

Mahim

Bandra (E)

Ghatkopar

Borivli

Thane

Bhandup

Belapur

Malad

Goregaon

Andheri

Bandra (W)

MUMBAI

Kemps

Corner

Lower

Parel

Worli

Mulund

Thane

Belapur Rd

Vashi

Jogeshwari

Santacruz (E)

Fort/ Fountain

MUMBAI MARKET OUTLOOK

6

Office Supply - 2008

28%

55%

17%

Commercial IT SEZ IT

Source: Cushman & Wakefield

Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research

Supply Absorption Vacancy Rate (%)

Are

a (

mill

ion s

q.ft.)

Va

cancy R

ate

(%

)

Supply, Absorption and Vacancy Trends

0

1

2

3

4

5

6

7

8

9

10

2003

0

2

4

6

8

10

12

14

2004 2005 2006 2007 2008

in a supply of about 458,000 sq.ft. in 2008. The space

constrained city also witness it's first SEZ supply of 1.6 million

sq.ft. in suburban location of Powai.

1In 2008 the total demand for commercial office space in

Mumbai was recorded at 5.32 million sq.ft. which was about

15% higher as compared to the demand in 2007.

Concerned with rescheduling of timelines of under

construction projects by several developers, tenants showed

increasing preference towards ready to move opportunities.

As a result, the total demand in 2008 was driven by

absorption rather than pre-commitments.

Of the total demand for 2008, absorption comprised of

approximately 3.36 million sq.ft. while new pre-commitments

were recorded at 1.96 million sq.ft. Additionally about 5.16

million sq.ft. of office space, which was pre-committed to in

previous years, got absorbed in 2008. The first half of 2008

accounted for approximately 80% of the annual demand which

moderated significantly thereafter due to the impact of the

global economic slowdown on the Indian economy.

IT/ITeS and BFSI sectors continued to remain the principal

drivers accounting for 43 % and 29% of the total commercial

space demand in the city respectively. Additionally Mumbai

also witnessed increasing demand from sectors such as

pharmaceuticals, aviation and infrastructure/real estate

developers, albeit their contribution to overall demand was

marginal.

Of the total demand, about 222,000 sq.ft. of office space was

also absorbed by business centres in locations like Bandra,

Lower Parel and Fort. Some of the major business centre

players operating in the city included Avanta, Regus, Stylus and

DBS.

With STPI benefits slated to end in 2009-10, Mumbai

witnessed significant demand for IT - SEZ space in 2008. The

supply of 1.6 million sq.ft. of SEZ space in Powai was almost

entirely absorbed due to lack of other SEZ options in the city.

Significant demand was also recorded at Bandra (17%), Lower

Parel (13%) and Malad (11%)

With the slowdown in global economy, many corporates have

eased or postponed their expansion plans resulting in subdued

demand for office space in the city. As a result Mumbai

witnessed an overall vacancy of about 12% in 2008 which is

significantly higher as compared to 2007, when the vacancy

levels were recorded at about 4-5%. Vacancy in CBD inched

closer to 5% in 2008 as compared to 1-2% in 2007 on account

of restrained demand and low renewals of expired lease

agreements by corporates. Off CBD locations like Worli and

Lower Parel witnessed a vacancy of approximately 7-9%.

Vacancy levels in suburban markets of Andheri, Malad and

Bandra soared to 14-15% due to large fresh supply coupled

with low demand in these markets.

Mumbai witnessed a drop in rental values across most micro

markets in 2008. Highest rental drop of 25% was recorded in

Andheri followed by Malad (-11%) and Bandra (-9%). Drop in

rental values in these markets can be attributed to low

existing demand coupled with increasing vacancies and large

upcoming supply in these micro markets.

Subdued demand and increasing vacancy rates led to a drop in

rental values at Nariman Point and Worli by 9% and 13%

respectively. However rental values at Lower Parel, Vashi and

Thane Belapur Road have largely remained stable due to

limited supply in these markets.

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

0

100

200

300

400

500

Average Rental Values Trend - Office Districts2

1Q

- 0

3

2Q

- 0

3

3Q

- 0

3

4Q

- 0

3

1Q

- 0

4

2Q

- 0

4

3Q

- 0

4

4Q

- 0

4

1Q

- 0

5

2Q

- 0

5

3Q

- 0

5

4Q

- 0

5

1Q

- 0

6

2Q

- 0

6

3Q

- 0

6

4Q

- 0

6

1Q

- 0

7

2Q

- 0

7

3Q

- 0

7

4Q

- 0

7

1Q

- 0

8

2Q

- 0

8

3Q

- 0

8

500

Nariman Point Worli Lower Parel

Bandra Kurla Andheri Kurla Malad - IT

Powai - IT Vashi - IT Thane Belapur Road - IT

4Q

- 0

8


7

1 Demand= Fresh Pre commitment + Fresh Absorption for the year.

2 Average rentals are for bareshell facilities



Dec 2007 Dec 2008 Growth Rate (%)

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

Gro

wth

Rate

(%

)

0

100

200

300

400

500

Na

rim

an

Po

int

-30

-25

-20

-15

-10

-5

0

Wo

rli

Lo

we

r P

are

l

Ba

nd

raK

urla

Ma

lad

- IT

Po

wa

i -

IT

Va

sh

i -

IT

Th

an

eB

ela

pu

r -

IT

An

dh

eri

Ku

rla

2Average Rental Values - Office Districts


Low High Annual Growth Rate (%)

An

nu

al G

row

th R

ate

(%

)

So

uth

So

uth

Ce

ntr

al

Ce

ntr

al

No

rth

Fa

r N

ort

h

No

rth

Ea

st

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

Capital V

alu

es (

INR

/sq.ft.)

1Average Residential Capital Values - High End

Outlook

The office space market in 2009 is likely to be characterized

by large anticipated supply (approximately 16 million sq.ft.),

rising vacancy rates and reduced demand. Given a rather

stringent macro economic environment, developers and

landlords are likely to experience difficulty in maintaining

rental values at current levels.

In the absence of any major upcoming supply over the next

12 months, drop in rental values for CBD and Off CBD

locations is expected to be marginal. However planned large

scale redevelopment of mill land for commercial use at Lower

Parel coupled with reducing demand is likely to result in

significant correction in rental values.

About 50% of anticipated supply in 2009 is expected to be

concentrated in suburban markets of Andheri, Malad and

Bandra which includes IT/ITeS specific supply of approximately

2 million sq.ft. This large upcoming supply coupled with

existing high vacancies is expected to keep rental values

under pressure.

Micro markets of Thane and Thane Belapur Road are

expected to witness a supply of about 6 million sq.ft. in 2009,

nearly 55% of which is likely to be IT/ITeS specific. In spite of

the state government's recent resolution to allow financial

service providers to occupy up to 80% of space in an IT Park,

the large IT/ITeS specific supply coupled with reduced demand

from IT/ITeS sector is likely to create a supply to demand

mismatch keeping rental values under pressure in these

markets.

With STPI benefits stated to end in 2009, the limited IT/ITeS

specific demand is expected to be steered towards the

upcoming SEZ space along the Thane Belapur Road on

account of lower rentals and prevailing tax benefits in SEZs

space. With limited availability of SEZ space in the city, SEZ

rentals in Thane Belapur Road are expected to remain stable.

Peripheral locations like Thane and eastern suburbs (Vikhroli,

Kanjurmarg, Bhandup and Mulund) are likely to emerge as

new commercial hubs in the city due to low rentals and large

upcoming supply in these markets.

RESIDENTIAL

The global economic slowdown affecting the Indian economy

on the whole had a direct bearing upon the residential market

which saw a gradual slowdown in investor activities. Monetary

measures to curb inflation not only led to increase in home

loan interest rates but also curtailed availability of funds to

real estate developers in second half of 2008. This, coupled

with growing belief that capital values have already peaked

and likely to witness correction, resulted in investors and

end-users adopting a wait and watch, approach thereby

bringing a slowdown in Mumbai residential sector.

Developers also restricted the launch of new projects in 2008

due to low pre commitments by investors and restrained

demand from end users for under construction projects. With

limited opportunities for development in south and south

central Mumbai, most of the new supply was concentrated in

suburban locations of far north Mumbai (Andheri, Goregaon

and Malad). However central Mumbai (Worli and Lower Parel)

and North Mumbai (Bandra, Santacruz and Juhu) witnessed

sporadic supply of premium projects.

Recent policy reforms such as repealing of the Urban Land

Ceiling Act, increase in Floor Space Index (FSI) for townships

and allowing upto 100% FDI for township development

enticed township developments in peripheral locations of the

city. As a result Mumbai witnessed launch of two township

projects in peripheral locations of Panvel and Thane in 2008.

Capital Values

Almost a complete absence of investors, increasing interest

rates on home loans and anticipation of correction in the

existing high capital values led to restrained demand in second

half of 2008. As a result capital values in the city which had

witnessed accelerated growth over the last 4-5 years stabilised

by 3Q 2008 and softened by the end of the year 2008.

As compared to 2007, capital values witnessed mixed

response across various micro markets in 2008. While demand

for high end projects remained buoyant, consistent increase in

home loan interest rates resulted in drop in affordability for

end-users for mid end projects.

Rental Cycle

Market

Recession

Market

Bottoming

Market

Recovery

Market

Slowing

RentalTrough

StrengtheningMarket

RentalPeak

WeakeningMarket

4Q 2008

24Q 2009 (F )


8

1 Average high end values are for properties ranging from 3,000 to 6,000 sq.ft.

2 Forecast




An

nu

al G

row

th R

ate

(%

)

Average Residential Rental Values - Mid End2

So

uth

So

uth

Ce

ntr

al

Ce

ntr

al

No

rth

Fa

r N

ort

h

No

rth

Ea

st

Renta

l V

alu

es (

INR

/month

)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

-25

-20

-15

-10

-5

0


An

nu

al G

row

th R

ate

(%

)

Average Residential Capital Values - Mid End2

So

uth

So

uth

Ce

ntr

al

Ce

ntr

al

No

rth

Fa

r N

ort

h

No

rth

Ea

st

Capital V

alu

es (

INR

/sq.ft.)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

On account of limited fresh supply and buoyant demand,

south and south central Mumbai remained largely insulated

from slowdown in residential sector and witnessed marginal

softening in capital values for both high and mid end segment.

However price sensitive markets of far north (Andheri,

Goregaon and Malad) and north east (Powai) witnessed

significant softening in capital values for both mid end and high

projects (-11% to -17%) due to large supply and restrained

demand from end-users due to reduced affordability and

anticipation of further price correction. Lower demand for

under construction projects resulted in steep correction in

capital values for both high end (-12%) and mid end projects

(-18%) in central Mumbai.

Rental Values

Rental values which had remained stable in first half of 2008,

witnessed significant correction across all micro markets due

to overall restrained demand and realignment of rental

expectation to market sentiments by property owners who

had earlier held on to their rental expectations in anticipation

of growing demand from end users.

Significant softening of rental values were recorded for both

high and mid range properties. With multinationals showing

increasing preference for north and far north Mumbai over

south Mumbai due to low rentals and accessibility to

commercial hubs like Bandra Kurla Complex, Andheri and

Malad, south and south central Mumbai witnessed significant

correction in rental values of high end apartments.

However mid range properties in south and south central

Mumbai which witnessed marginal correction due to limited

availabilities. The highest rental correction was recorded in

mid range properties across price sensitive locations like far

north and north east Mumbai which witnessed 21-24% drop in

rentals due to drop in affordability.

Outlook

Increasing preference is likely to be given to smaller units and

lower cost housing projects for middle income groups,

especially in price sensitive markets. As a result developers in

far northern locations (Andheri, Goregaon and Malad) are 3

likely to focus on small sized apartments (1-2 BHK

apartments) catering to middle income group.

With Supreme Court allowing redevelopment of over 19,000

buildings across Mumbai, south and south central Mumbai

could witness the launch of a few new mid and high range

projects in second half of 2009. This could lead to softening of

capital values in these markets which have so far remained

insulated from correction due to limited supply and still

buoyant demand.

In 2009, as most developers are likely to focus on reducing

existing inventory, capital values for both high and mid end are

likely to remain under pressure over the next 10 to 12

months across most micro markets.


9


2 Average mid end values are for properties ranging from 1,400 to 2,200 sq.ft.

3 BHK - Bedroom, Hall & Kitchen

Key to the Residential Locations:

South: Colaba, Cuffe Parade, Nariman Point, Churchgate

South Central: Altamount Rd., Carmichael Rd., Malabar Hill, Napeansea Rd., Breach

Candy, Pedder Rd.

Central: Worli, Prabhadevi, Lower Parel / Parel

North: Bandra (W), Khar (W), Santacruz (W), Juhu

Far North: Andheri (W), Malad, Goregaon

North East: Powai



Annual G

row

th R

ate

(%

)

Average Residential Rental Values - High End1

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

-20%

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

So

uth

So

uth

Ce

ntr

al

Ce

ntr

al

No

rth

Fa

r N

ort

h

No

rth

Ea

st

Re

nta

l V

alu

e (

INR

/mo

nth

)


0

100

200

300

400

500

600

700

800

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08

Lower Parel Malad Link Road, Andheri (W)

Mulund Goregaon Vashi

Ghatkopar

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

1Average Mall Rental TrendRETAIL

With several brands undergoing an expansion spree, Mumbai

retail market witnessed accelerated retail activity in the

beginning of 2008. However by end of the year, the slump in

consumer demand due to increasing inflation and slowdown

in economy resulted in many brands postponing or cutting

short their expansion plans.

With brands increasingly focusing on cost containment,

significant correction in rental values was witnessed across

most micro markets. Additionally brands exhibited preference

to established markets over emerging peripheral locations in

order to ensure business viability.

Mall Development

In 2008, Mumbai witnessed development of seven malls with a

total built up area of about 2.02 million sq.ft., taking the total

mall stock in the city to about 7.66 million sq.ft.. However this

was well short of anticipated supply which was estimated at

4.37 million sq.ft. in the beginning of 2008. About 2.17 million

sq.ft. of mall space which was expected in 2008 has been

deferred to 2009 largely due to rescheduling of construction

plans. Majority of deferred supply is expected to be available

in second half of 2009. Additionally, sizeable retail

development of 150,000 sq.ft. to 170,000 sq.ft. which was

planned in 2008 has now been converted into commercial

office space.

Accelerated residential developments in peripheral locations

resulted in increasing demand for retail space in certain

markets. As a result majority of mall supply in 2008 was

concentrated in peripheral locations like Vashi (770,000 sq.ft.),

Kharghar (250,000 sq.ft.) and Kalyan (104,000 sq.ft.). While

suburban location of Goregaon witnessed opening of Oberoi

Mall (400,000 sq.ft.), Grand Galleria (150,000 sq.ft.) became

operational at Highstreet Phoenix in Lower Parel. Mall

developments were also recorded in suburban locations of

Andheri.

Mall rental values which reached a record high in first half of

2008 witnessed a decisive drop by the end of 2008 across

most micro markets, barring a few.

Realignment of expansion plans and wait and watch approach

from retailers has led to reduced leasing activity, thereby

postponing major upcoming supply in Lower Parel. As a result

in spite of marginal vacancy (3-5%), Lower Parel witnessed a

sharp year-on-year decline (-27%) in rental values. Rental

values at Vashi witnessed a correction of approximately 17% in

2008 due to addition of significant new supply and high

vacancy levels of approximately 10% in existing mall stock.

Lal Bahadur Shastri Marg (LBS Marg) which runs through

central Mumbai (Ghatkopar-Vikhroli-Bhandup-Mulund-Thane)

is expected to witness large supply of approximately 2 million

sq. ft, over the next 12-18 months. The upcoming supply is

likely to create additional retail hubs along the eastern suburbs

which otherwise was polarized in Mulund. Anticipated drop in

footfalls and upcoming opportunities in adjoining areas has

affected market attractiveness of Mulund and has led to a drop

in demand for retail space in Mulund resulting in softening of

rental values by 14%.

Goregaon, which recorded accelerated growth in rental values

in the beginning of 2008 due to favorable demand supply

scenario, experienced a slowdown in demand due to concerns

about non-viability of business at such high rental values

resulting in a steep correction of about 17% in the second half

of 2008. However consistent business performance by most

brands resulted in Malad witnessing a year-on-year

appreciation of 17% in 2008. Vacancy levels in Malad and

Goregaon were recorded at 3-5% in 2008.

Main Street Development

Main street rental values which had recorded a steep increase

in the beginning of 2008, witnessed a correction in second half

of 2008 as a direct result of reduced leasing activities and

cautious expansion plan by many retailers.

During 4Q 2007 to 1Q 2008, main streets of south Mumbai

(Colaba Causeway and Fort/ Fountain) witnessed significant

appreciation in rental values as a result of accelerated

expansion plans by various brands. However most brands

curtailed their expansion plans in second half of 2008 in

response to the economic slowdown resulting in subdued

leasing activity in these main streets. The restrained demand

has strengthened tenant's position and resulted in significant

correction of rental values in these markets.


10

1 Average rentals are for ground floor premises on carpet area.



Are

a (

mill

ion s

q.ft.)

Mall Supply Trend

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2006 2007 2008 2009 (F) 2010 (F)

Year

Linking Road witnessed more leasing transaction as compared

to other high streets. Retail chains like Croma, Manzoni,

Woodland, etc opened their stores here. Rental values which

reached record high in first half of 2008 plunged thereafter by

approximately 40% due to overriding market sentiments

resulting in realignment of rental expectations to market

sentiments and business viability.


11

0

200

400

600

800

1000

1200

1400

1600

Linking Road Kemps Corner/Breach Candy

Colaba Causeway Lokhandwala Andheri

Fort/Fountain

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

Average Main Street Rental Trend

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08


Rental values at Lokhandwala-Andheri and Kemps

Corner/ Breach Candy largely remained stable on account

of low vacancy levels and buoyant demand in these

markets.

Outlook

Increasing residential development and availability of land

parcels to develop malls in the peripheral locations will create

new shopping and entertainment centres in the city. In 2009,

Mumbai is expected to witness a total mall supply of

approximately 5.44 million sq.ft. including 2.17 million sq.ft. of

deferred supply from 2008 and 3.27 million sq.ft. of fresh

supply for 2009. Significant part of the upcoming supply will be

concentrated in peripheral locations. The upcoming supply

will predominately comprise of mid and small formats malls;

however, Mumbai is likely to witness few large format malls in

peripheral locations in the next 2 years.

The current economic slump has adversely impacted

consumer demand forcing many retailers to re-evaluate their

expansion plans. As the slowdown in the economy in

expected to continue in near future, mall rental values could

witness a further correction in first half of 2009 on account of

high vacancies, large upcoming supply and low demand.

Restrained leasing activities is likely to keep the main street

rental values in 2009 under pressure.

Note : �

security deposit, maintenance charges and other such outgoings.

�Average rentals are for ground floor premises on carpet area

The rental values indicated are base rents and do not include interest cost of


57%

34%

IT Developments Non-IT IT SEZ

9%

COMMERCIAL

The commercial office supply in NCR was approximately 14.1

million sq.ft. during the year 2008 as compared to the planned

supply of over 18 million sq.ft. in the beginning of the year.

Majority of the supply was concentrated in the suburban

locations of Gurgaon (53%) and Noida (39%) due to

availability of land parcels in the region. The uncertainty over

the extension of the STPI benefits was one of the factors

encouraging developers to undertake several SEZ projects

admeasuring 1.3 million sq.ft. in 2008.

Majority of the office development catered to the IT/ITeS

sector as 66% of the new stock added in the region during the

year was IT SEZ and other IT developments followed by

corporate office space.

The global economic crisis leading to credit crunch affected

the timeliness of several projects, also the delay in

construction schedule has caused deferment of certain

developments. As a result few projects admeasuring 6.2 million

sq.ft. stand deferred to 2009, majority of which caters to the

IT/ITeS sector.

Bhagat

Singh ParkLibaspur

St. Nagar

Jahangirpuri

Majlis

Park

Kirti Nagar

Old Rajender Nagar

Karol Bagh

Dharam

Pura

Roop Nagar

Raj Nagar

Karawal

Nagar Amar

Colony

Dilshad Garden

Rajgarh

Colony

Nirman

Vihar

Mayur Vihar

Phase I

Mayur Vihar

Sahibabad

Industrial Area

Shahdara

Aghapur

Hazipur

Village

Yamuna

River

Jasola Vihar

Okhla

Vishwakarma

Colony

Pulpehladpur

DLF Industrial

Area

Green Fields

Colony

Spring Field Colony

Sector 19

Sector 16

Dera

Sangam ViharKhanpur

Vasant Kunj

Safdarganj

Development

Area

R.K. Puram Lajpat

Nagar

Friends

Colony

GHAZIABADPitampura

Ashok Vihar

Daya Basti

Shakurpur

Colony

Shalimar

Bagh

Rohini

Inder Enclave

Prem Nagar

Prem Nagar IIPaschim Vihar

VikaspuriMohan

Garden

Sector - 16B

Najafgarh

Dwarka

Uttam Nagar

Janak PuriHari Nagar

Vishnu Garden

Sagarpur

Palam

Nangal

DewatMahiapalpur

Rajokri

Udyog Vihar

Sector 5

Sushant Lok

DLF

Phase 5Sector 39

Sector 35

Sector 34

Sector 10B

Sector 9

GURGAON

NEW DELHI

NOIDA

Sector 23

Mangolpuri

NH 2

NH 8

NH 8

NH 10

NH 10

Connaught Place

Nehru

Place

Rajouri

Garden

Khan

Market

South

Ext.

GK-1

Saket

Shanti

Niketan

GK-11

Anand

LokNiti

Bagh

Golf

Link


Other (construction, advertising, aviation etc.) IT & ITeS Automobile

Research & Consulting Telecom BFSI

67%

10%

11%6%3%

3%

NCR MARKET OUTLOOK

12

Commercial

Micro Market



Retail

Micro Market



Residential

Micro Market





Rental Cycle

Market

Recession

Market

Bottoming

Market

Recovery

Market

Slowing

RentalTrough

StrengtheningMarket

RentalPeak

WeakeningMarket

4Q 2008

4Q 2009(F)

The demand for commercial office space in NCR was

recorded at 14.4 million sq.ft. during 2008 which includes 5.8

million sq.ft of space pre-committed during the year on supply

likely to enter in 2009. The demand was primarily driven by

IT/ITeS sector which accounted for nearly 67% of the total

absorption. In addition, IT/ITeS developments witnessed

majority (97%) of the pre-commitments likely to be absorbed

in 2009.

The increase in supply and weakening business sentiment led

to increase in vacancy levels in the region, which is currently

in the range of 8-10%. The vacancy level in Gurgaon and

Noida stood in the range of 7-9% and 16-17% respectively at

the end of the year. However, vacancy rate in CBD and Off

CBD locations remained stable in range of 3-4% due to quick

take up of space.

The year witnessed the rental values (except IT/SEZ segment)

exhibiting an upward trend in the first half of the year before

declining in the last two quarters owing to the exogenous

factors adversely affecting the economy and trickling down to

the real estate sector. The rental values of the IT/SEZ segment,

on the other hand, depicted correction from the second

quarter due to weakening demand and fear of oversupply in

some pockets. CBD and Off CBD locations despite being the

traditional office destination in NCR noted correction in the

range of 14-16% in the last quarter of the year due to the

weakening business sentiment and non-sustainability of high

NCR MARKET OUTLOOK

13

1 Warm shell rentals that include power back-up and high side air-conditioning

2 SCBD - Secondary Central Business District





Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

Gro

wth

Rate

(%

)

0

50

100

150

200

250

CB

D

-20

-15

-10

-5

0

5

10


300

350

400

15

20

Off C

BD

SC

BD

So

uth

Mic

ro M

ark

et

Gu

rga

on

(Co

mm

erc

ial)

Gu

rga

on

(IT

/ S

EZ

)

No

ida

(Co

mm

erc

ial)

1

No

ida

1(I

T/S

EZ

)


price points achieved during previous years. Other locations 2

such as SCBD , Gurgaon and Noida started to witness

correction since the third quarter of the year. These

locations recorded a correction of 11% in the last quarter

primarily due to economic conditions in addition to new

stock added which exerted downward pressure on the

rental values.

Outlook

The demand is likely to decline in wake of slowdown in

economic growth and deferred expansion plans of the

corporate. Office supply anticipated in 2009 is approximately

18 million sq.ft. which is likely to further correct rentals. As

majority (72%) of the upcoming supply caters to the IT/ITeS

segment with SEZ development of approximately 7 million

sq.ft. in the suburban locations, this segment is likely to foresee

further correction.

The pre-commitments are likely to reduce in the near future

as the corporate sector adopts cautious expansion

strategy leading to reduced demand. The corporate occupiers

will now look to re-negotiate leasing terms and

rentals with the developers or consider re-location to

more cost effective locations, now readily available due to

increase in availability in certain suburban micro markets.

Renta

l V

alu

es (

INR

/Sq.ft./m

onth

)

50

100

150

200

250

3Average Rental Values Trend - Office Districts

300

0

350

400

CBD Off CBD SCBD

South Micro Gurgaon - Commercial Gurgaon (IT/SEZ)1

Noida - Commercial1

Noida (IT/SEZ)

1Q

- 0

3

2Q

- 0

3

3Q

- 0

3

4Q

- 0

3

1Q

- 0

4

2Q

- 0

4

3Q

- 0

4

4Q

- 0

4

1Q

- 0

5

2Q

- 0

5

3Q

- 0

5

4Q

- 0

5

1Q

- 0

6

2Q

- 0

6

3Q

- 0

6

4Q

- 0

6

1Q

- 0

7

2Q

- 0

7

3Q

- 0

7

4Q

- 0

7

1Q

- 0

8

2Q

- 0

8

3Q

- 0

8

4Q

- 0

8



Are

a (

mill

ion s

q.ft.)

Va

cancy R

ate

(%

)


0

2

4

6

8

10

12

14

16

2002

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008

RESIDENTIAL

The demand in residential segment in NCR witnessed a

gradual shift from investor driven market to that driven by

end users. However, high property prices inhibited certain

individuals to make purchase decisions despite several interest

rate cuts by the Central Bank in an attempt to revive demand.

Certain developers also made a conscious effort to renew

demand by offering incentives such as free parking, deferment

of payment of EMI till possession and customising payment

scheme for projects nearing completion.

The credit crisis made the developers conscious of the offer

price/launch price of new project launches reflecting a

relatively higher correction than in prices of ready to move in

properties. The residential development for the mid income

group gained prominence as this segment was unaddressed

and contained huge demand. A few projects such as Wish

Town Klassic, Park Serene and DLF Express Greens to name a

few catering to mid income group were launched in the

suburban locations of Gurgaon and Noida, despite the

slowdown.

Capital Values

The capital values witnessed appreciation until the first half of

the year in both the high end and the mid end segment.

However, correction was noted in the last quarter of the year

in the range of 7-18% over the previous quarter in all micro

markets. This decline in values across majority of the micro

markets was not steep and it still held up to the level

prevailing in the beginning of the year. However, values in high

end segment of Noida and the mid end segment of Gurgaon

and Noida declined in the range of 1-10% over the year falling

below the level prevailing in the beginning of the year. The

correction noted varied across ready to move in properties

and under construction projects with the latter depicting

relatively higher correction.

The Delhi locations recorded a decline in values in the range

of 10-12% in the last quarter over the previous quarter.

However, the values in most of these locations increased in

the range of 4-12% over the year. These micromarkets

witnessed appreciation in values up till the first half of the year

as the demand was driven by consulates and high commissions.

However, thereafter the decline in the last quarter was not

steep to pull values from the level prevailing in the beginning

of the year, although the demand weakened. The high end

segment of Gurgaon noted highest appreciation of capital

value over the year owing to demand from senior

management/top executives.

Rental Values

Similar trend was noted with rental values appreciating in the

first half of the year and witnessing marginal correction in the

NCR MARKET OUTLOOK

14



Key to the Residential Locations:

High End Segment

South West: Shanti Niketan, Westend, Anand Niketan, Vasant Vihar

South East: Friends Colony, Maharani Bagh, Greater Kailash - I & II

South Central: Defence Colony, Anand Lok, Niti Bagh, Gulmohar Park, Hauz Khas

Enclave, Panchsheel Park etc.

Central: Jorbagh, Golf Links, Amrita Shergil Marg, Aurangzeb Road, Prithviraj Road,

Sikandara Road, Tilak Marg, Mann Singh Road, Tees January Marg, Chanakyapuri etc.

Mid End Segment

South East: New Friends Colony, Kalindi Colony, Ishwar Nagar, Sukhdev Vihar,

Kailash Colony, Pamposh Enclave

South Central: Green Park, Saket, Asiad Village, Geetanjali Enclave, Safdarjung

Enclave, Panchsheel Enclave etc.


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

-10

-5

0

5

10

15

20


1Average Residential Rental Values - High End

Re

nta

l V

alu

es (

INR

/mo

nth

)

An

nu

al G

row

th R

ate

(%

)

So

uth

We

st

So

uth

Ea

st

So

uth

C

en

tra

l

Ce

ntr

al

Gu

rga

on

No

ida



It is anticipated that the flexible leasing terms will continue in

the long term highlighting the shift from the landlords market

to the tenants market with the bargaining strength with the

latter.



Capital V

alu

es (

INR

/sq.ft.)

Annual G

row

th R

ate

(%

)

0

10,000

20,000

30,000

40,000

50,000

60,000

-6

-4

-2

0

2

4

6

8

10

So

uth

We

st

So

uth

Ea

st

So

uth

C

en

tra

l

Ce

ntr

al

Gu

rga

on

No

ida

0

5,000

10,000

15,000

20,000

25,000

-15

-10

-5

0

5

10

15


2Average Residential Capital Values - Mid End

Capital V

alu

es (

INR

/sq.ft.)

An

nu

al G

row

th R

ate

(%

)

So

uth

Ea

st

So

uth

C

en

tra

l

Gu

rga

on

No

ida

Are

a (

mill

ion s

q.ft.)

Year

Mall Supply Trend

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2006 2007 2008 2009 (F) 2010 (F)

Renta

l V

alu

es (

INR

/Sq.ft./m

onth

)

Average Mall Rental Trend

0

100

200

300

400

500

600

700

Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08

Gurgaon

NOIDA South Delhi

West Delhi

range of 2-9% in the last quarter vis-à-vis the previous

quarter. This is owing to companies and individuals adopting a

cautious approach in leasing a property due to availability of

diverse options. The values across Delhi locations appreciated

in the range of 4-11% over the year except high end segment

of south east location which witnessed decline of 6% over the

year. This was due to reduced activity from boutique builders

to refurbish properties and limited demand from expatriates

in current economic scenario.

RETAIL

Mall Development

NCR witnessed mall supply of approximately 4.6 million sq.ft

during 2008, depicting an increase of 21% over the last year.

The supply was evenly spread across locations of South Delhi,

Greater Noida and Faridabad, each of which witnessed new

mall development of approximately 1.0 million sq.ft.

representing 64% of the total mall supply. Locations of West

Delhi, Gurgaon and Ghaziabad accounted for the remaining

supply of 1.6 million sq.ft. during the year.

Additionally, malls comprising 1.4 million sq.ft. completed

construction but have not commenced operations either due

to pending approvals or lack of tenants.

NCR MARKET OUTLOOK

15

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)


0

200

400

600

800

1000

1200

1400

1600

Khan Market Connaught Place (Inner Circle) South Extension I & II

Karol Bagh Basant Lok Greater Kailash I, M Block

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08

The mall rentals were stagnant for the first half of the year as

the supply that entered the market could not generate

demand inspite of being available for leasing much before it

became operational. However, the rental values started to

correct in the third quarter due to cautious expansion plans

of retailers under prevailing economic conditions and

substantial mall space (2.0 million sq.ft) getting operational.

So

uth

Ea

st

So

uth

C

en

tra

l

Gu

rga

on

No

ida

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

0

5

10

15

20

25

Low High Annual Growth Rage (%)

1Average Residential Rental Values - Mid End

Renta

l V

alu

es (

INR

/month

)

An

nu

al G

row

th R

ate

(%

)

Despite correction in values, the mid-end segment in the

suburban locations of Gurgaon and Noida witnessed highest

appreciation in the range of 21-24% over the year.

Outlook

The capital values are likely to continue to decline in the

medium term due to subdued demand from the end users.

The launch of new projects and slowdown in demand is likely

to compel the developer to soften prices in the suburban

locations and increase marketing efforts.

Rental values are expected to decline owing to the weakening

economic sentiment. Certain companies and individuals have

started to prefer suburban locations over Delhi locations as it

provides better quality of living at relatively lower price/value

which may lead to correction in values in Delhi in the medium

term.


The weak economic conditions led to low or negative revenue

growth of the retailers. This made it difficult for the retailers

to hold onto the current rental payout forcing them to re-

evaluate their expansion plans by either resizing or opting out.

Certain retailers and developers are also considering revenue

sharing with minimum guarantee to moderate the effect of the





Note : �The rental values indicated are base rents and do not include interest cost of security deposit, maintenance charges and other such outgoings.


NCR MARKET OUTLOOK

16

slowdown. Several developers are also contemplating to

convert existing or planned retail developments to

commercial office space in order to cope up with the tough

economic conditions.

The last quarter of the year noted dip in rental values in the

range of 12-27% over the previous year. West Delhi locations

saw maximum correction of 27% over the last year due to

high vacancy in the existing development of north-west Delhi

in addition to the anticipated supply in 2009. Whereas, rental

values in South Delhi micromarket witnessed relatively lower

correction of 12% over the year due the nature of

developments and lower vacancy levels.

Mall vacancy levels across NCR increased marginally (1%) in

the last quarter of the year vis-à-vis the previous quarter. At

the end of the year, vacancy level stood at 24% owing to

increase in available space in Delhi and Gurgaon. This has

resulted in the deferment of several mall developments

amounting to 2.4 million sq.ft. to 2009.


The leasing activity across various Main Streets was active up

till the second quarter of the year and increase in rental

values was recorded. Many existing shopkeepers capitalised

on the upturn of the sector and provided opportunity to the

lifestyle retailers who were keen to establish their presence.

However, leasing activity remained subdued in the second half

due to worsening economic conditions and cautious

expansion strategy of followed by various brands.

The rental values were holding up to previous years level up

till the third quarter, thereafter the values began witnessing

correction across all micromarkets in NCR, with maximum

decline of 16% noted in prominent main streets of Connaught

Place (Inner Circle), Karol Bagh and Basant Lok compared to

the previous year. These retail markets had achieved high price

points during last couple of years which seemed unsustainable

in prevailing economic scenario forcing a correction.

Outlook

Low conversions and reduced demand is likely to put pressure

on the rental values across both malls and main street

locations in the medium term. The anticipated mall supply of

6.3 million sq.ft. in 2009, with majority of it in South Delhi and

Gurgaon will further lead to correction in these

micromarkets. In the immediate future, the retailers are

expected to consolidate their operations focussing mainly on

more viable outlets. Certain landlords/developers have

depicted flexible approach to lease agreement in order to hold

on the demand. This is likely to continue in the long run amidst

weakening business sentiment.


Others IT & ITeS Automotive

Telecommunications BFSI

88%

5%1%1%


51%

49%

COMMERCIAL

Bangalore's commercial market witnessed a fair quantum of

supply in 2008 totalling 11.18 million sq.ft., with an annual

growth rate of nearly 16%. There was an even distribution of

SEZ and non-SEZ space, with the former accounting for 51%

of the total supply in 2008. Peripheral locations were the

highest contributors to commercial office space supply with

approximately 10 million sq.ft. (89%) of the total annual supply.

Whitefield and Outer Ring Road (ORR) were the primary

contributors with minimal contribution from Hosur Road and

Electronics City. A significant supply of nearly 5.28 million

sq.ft. was witnessed on the ORR stretch from Hebbal to

Sarjapur.

Given the liquidity crunch in the markets and the reduced

demand for office space following the global economic

slowdown, 2H 2008 witnessed the postponement of a lot of

projects to 1H 2009. Nearly 20% of the total supply projected

for 2008 in the beginning of the year is expected to get

delivered in 2009. IT/ ITeS accounts for nearly 90% of

commercial office space in Bangalore and currently many IT

BANGALORE MARKET OUTLOOK

17

IT SEZ Non SEZ

Commercial

Micro Market



Retail

Micro Market



Residential

Micro Market





firms have started to base their leasing activities on short-

term outlook rather than on long term expansion plans.

While demand for soft options is disappearing, need-based

leasing of IT space is gradually gaining ground. In this climate

of reduced visibility in space demand, SEZs in the city have

also been affected.

Massive multi-product SEZs requiring huge investments have

been the worst affected in this economic meltdown; but even

Bangalore, which mostly accounts for small sector-specific

(notified) SEZs, have been affected to some extent. Some IT

SEZs planned along the ORR and Whitefield micro-markets

have already seen slowdown in their phased developments,

with much of the project construction having been deferred

to 2009-10. The city's real estate sector in 2H 2008 mirrored

global economic conditions and unlike trends noticed over

the past few years, fresh pre-commitments saw a drop.

The demand for commercial office space in Bangalore stood

at 6.36 million sq.ft. in 2008, which is a substantial decrease

from last year. Principal reason for this downturn is a

significant reduction in the total amount of pre-commitments

registered this year in comparison to 2007 and 2006. Nearly

1.62 million sq.ft. of space pre-committed to in 2008 is set to

get delivered in 2009, while another 845,750 sq.ft. will reach

completion by 2010. Another demand trend saw some firms

backing out of initial commitments, while others reduced the

built-up-area committed to in earlier quarters/ years.


18

Peripheral - ITPL

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

10

20

30

40

50

60


70

CBD

80

90

Off CBDSuburban - Koramangala / Indiranagar

Peripheral - Whitefield, Electronic City, Hebbal Peripheral - ORR (Sarjapur - Hebbal)

1Q

- 0

3

2Q

- 0

3

3Q

- 0

3

4Q

- 0

3

1Q

- 0

4

2Q

- 0

4

3Q

- 0

4

4Q

- 0

4

1Q

- 0

5

2Q

- 0

5

3Q

- 0

5

4Q

- 0

5

1Q

- 0

6

2Q

- 0

6

3Q

- 0

6

4Q

- 0

6

1Q

- 0

7

2Q

- 0

7

3Q

- 0

7

4Q

- 0

7

1Q

- 0

8

2Q

- 0

8

3Q

- 0

8

4Q

- 0

8

With total office space absorption of nearly 10.36 million sq.ft.

in 2008, Bangalore witnessed the highest space take up in the

country. This can largely be attributed to the pre-

commitments of previous years that were delivered in 2008,

accounting for nearly 62% of the total absorption for the year.

Similar to the supply trend for the year, ORR, a key peripheral

micro-market, witnessed about 5 million sq.ft. of absorption,

followed by Whitefield (2.65 million sq.ft.). Despite the IT

slowdown, major office space demand drivers for the city

continued to be the IT/ ITeS sector, followed distantly by other

sectors like Telecom, Automotive and Biotech etc.

The vacancy rate in Bangalore increased significantly in the

fourth quarter, reaching 16% as against a range of 7-10% in

earlier quarters. This was mainly because of the high vacant

stock in the Whitefield and ORR micro-markets. Peripheral

micro-markets (especially Whitefield) witnessed vacancy rates

in excess of 30% largely because of a continuing over-supply

situation (predominantly the first time developers) which got

aggravated due to the addition of fresh supply. CBD/ Off CBD

locations saw an increase of 8% (mainly due to many second

generation buildings coming into stock).

On the rental front CBD/off CBD and suburban areas saw a

significant increase by approximately 18% and 14%,

respectively, over last year because of limited Grade A supply

in these micro-markets. Peripheral micro-markets of ORR and

Electronics City however, hardly witnessed any significant

increase because of fresh supply, and second generation

building becoming available for leasing.

Outlook

There is approximately 14 million sq.ft. of commercial office

supply expected in 2009 with a likelihood of 6 million sq.ft.

that is currently expected by 4Q 2009 to spill over to 2010.

The wait-and-watch approach adopted by corporates is

expected to result in a further decrease in office space

demand and is likely to impact the project delivery schedule of

various developers. Peripheral locations will continue to be

the highest space contributor to the city's total supply while

SEZs are likely account for the majority of supply.

Rentals are likely to weaken across the CBD/ Off CBD micro

markets and are expected to stay stable in the peripheral 1 Above rentals are for warm shell facilities (shell and core facility, power, high side

air conditioning and 100% power backup




Supply Absorption VacancyRate (%)

Are

a (

mill

ion s

q.ft.)

Va

cancy R

ate

(%

)


0

1

4

6

8

10

12

14

16

18

2001

0

2

4

6

8

10

12

14

16

18

2002 2003 2004 2005 2006 2007 2008

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

Gro

wth

Rate

(%

)

0

10

20

30

40

50

CB

D / O

ff

CB

D

0

5

10

15

20

25

30

Average Rental Values - Office Districts

50

60

70

80

90

Su

bu

rba

n

Pe

rip

he

ral

ITP

L

Pe

rip

he

ral /

Wh

ite

fie

ld /

Ele

ctr

on

ics

City

Pe

rip

he

ral

OR

R


Rental Cycle

Market

Recession

Market

Bottoming

Market

Recovery

Market

Slowing

RentalTrough

StrengtheningMarket

RentalPeak

WeakeningMarket

4Q 2008

RESIDENTIAL

There has been a progressive demand slowdown in

Bangalore's residential market over the last year with

successive rises in interest rates since end-2007, that led to

home loans becoming increasingly unaffordable for the

common man. In a bid to encourage sagging consumer

confidence, private and nationalised banks lowered home loan

rates during the last few months of 2008, although the decline

was marginal and the impact limited.

This slump led to an alternative option for end-users to

purchase property from the secondary market, where

investors had begun to increasingly take the distress sale

route by mid-2008. A few of the city's quality projects from

reputed developers also saw distress sales in the range of 10-

15% discounted rates in the secondary market.This primary

market fall in sales led a few developers to even resort to

freebies and early bird discounts, offering anything from free

cars and free fit-outs to parking space discounts and pre-EMI

cost-bearing facilities in a bid to push sales.

While the demand slowdown from end-users and investors

continued, especially in the sale/ purchase of residential units,

the added pressure from the secondary market finally forced

primary market values to start declining in the fourth quarter

of 2008. By end-2008 even the secondary market sale

volumes became limited, greatly impacting the city's residential

market.

Rental Values

Rental values for both high-end and mid-range properties

across most micro-markets in the city remained stable till 3Q

2008, before the correctional trend began in the last quarter

of 2008. The only exception to this case was the mid-range

micro-market of Whitefield and Marathahalli, which continued

to witness minor rental corrections since the beginning of the

year. This was essentially due to the oversupply of large

residential developments from prominent as well as lesser-

know developers in these areas.

By 4Q 2008, the mid-range segment finally witnessed an

average drop by 10% across all micro-markets, except off

central locations which remained stable. The maximum rental

depreciation took place in the micro-markets of Whitefield

and Marathalli (east), which saw a continuation of their earlier

correctional trend. These particular micro-markets were

understandably hit the hardest at a time when the market in

general began to bottom out.

With sufficient choice available to end users coupled with

subdued demand, tenants in the city seem to have gained an

edge over landlords with regard to negotiations.

Capital Values

Capital values for both high-end and mid-range properties

across the city remained stable on an average till 3Q 2008. It

was not till 4Q 2008 that a select few developers in the city

began to announce price cuts ranging from a 10% cut across

all properties to an average 30% dip for premium projects

alone.


19

4Q 2009 (F)

1 Average high end values are for properties in the range of 3,000 - 5,000 sq.ft.

2 Average mid end values are for properties in the range of 1,700 - 2,500 sq.ft.


Renta

l V

alu

es (

INR

/month

)

An

nu

al G

row

th R

ate

(%

)

0

200,000

400,000

600,000

-5

-4

-3

-2

-1

0

1

La

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dO

ff P

ala

ce

Rd

Off C

un

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Low High Annual Growth Rate (%)R

enta

l V

alu

es (

INR

/month

)

An

nu

al G

row

th R

ate

(%

)


0

20,000

40,000

60,000

80,000

100,000

120,000

-30

-25

-20

-15

-10

-5

0

5

Bru

nto

n R

dA

rtill

ery

Rd

Ali

Aska

r R

d

Ma

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Wh

ite

fie

ldA

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Rd

Sa

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ing

Rd

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R L

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Rd

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Na

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r, K

an

akp

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Ba

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140,000


micro markets. However, developers active in peripheral

locations are expected to be more flexible towards other

lease terms such as rent free periods, escalation rates etc. Bangalore's office market has been predominantly driven by

IT/ ITeS with the sector being the major office space occupier

over the past 4-5 years. However, following the trends of 2008

as mentioned above, the Telecom, Automotive and Biotech

sectors are likely to be more active in office space leasing in

2009.




Towards the last quarter of 2008, residential capital values

saw an average drop of 10% across both high-end and

mid-range properties in most micro-markets. As discussed

earlier, the only micro-market to witness corrections

throughout the year was Whitefield and Marathahalli. The mid-

range south east micro-market of Sarjapur Road, Outer Ring

Road and HSR Layout also saw significant depreciation in

capital values over last year. This was primarily because quite a

few projects on Sarjapur Road witnessed a 19-20% dip in the

secondary market over end-2007, forcing primary values to

come down too.

Outlook

North Bangalore gained special significance for city

developers ever since plans for the Bangalore International

Airport (BIA) at Devanahalli were finalised. The state

government was also proactive towards this end by providing

the necessary support infrastructure and by improving

connectivity with the CBD. Quite a number of projects were

launched in this micro-market over the last couple of years

from reputed developers. While a few of these projects are

already operational in Hebbal, Sahakar Nagar, Jakkur, etc.,

others are expected to come into the market by 2009-10 in

and around Yelahanka, Coffee Board Layout, Thanisandra, etc.

Another micro-market to see a significant amount of future

residential supply is Bannerghatta Road and Kanakpura Road

in south Bangalore. There are quite a few residential

developments planned along Bannerghatta Road and its

surrounding areas, with approximately 4,000 units proposed

to be ready by 2010-11. The Kanakpura Road stretch is also

likely to see approximately 7,000-8,000 residential units by the

same time period. Hosur Road and Electronics City are other

areas that are also likely to see some fresh residential supply

in the next couple of years.

The current economic scenario has changed the outlook for

investment options in this sector in Bangalore. The market is

expected to witness further price weakening in the mid-term,

till market conditions and consumer confidence improve. At

present the market is suited for long-term investors; more so

for end-users rather than for investors looking at short-term

capital gains.

Affordable housing projects in the city are likely to gain

importance in the coming years (2009-2010). A growing trend

has already seen budget, 2 BHK properties (800-1,000 sq.ft.)

from prominent developers priced in the INR 2-3 million

bracket.

RETAIL

By 2H 2008 Bangalore's retail real estate sector began feeling

the heat of the current economic slowdown. The general drop

in consumer spending together with unviable retail rentals

translated into dipping rental rates, especially across the city's

prime high streets. Mall rentals, however, continued to remain

stable over the year, basically because of the lack of any

significant mall supply and a very low churn-out rate in

operational malls. The overall environment of cautious

commitment to fresh space uptake from retailers and mall

developers alike will most likely continue in the mid-term, till

the market begins to recover and consumers return to

stronger consumption patterns.

Mall Development

Bangalore witnessed about 0.34 million sq.ft. of mall

development in 2008, which is about half the supply (55%) as

compared to last year. The new malls become operational in

the second and the fourth quarters of the year. The country's

first luxury mall, The Collection, became operational in 2Q

2008 with luxury retail giant, Louis Vuitton, as one of its

anchors. The mall today houses luxury fashion and lifestyle


20

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

-20

-15

-10

-5

0

5

Capital V

alu

es (

INR

/sq.ft.)

An

nu

al G

row

th R

ate

(%

)


Bru

nto

n R

dA

rtill

ery

Rd

Ali

Aska

r R

d

Ma

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Wh

ite

fie

ldA

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Rd

Sa

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Ka

na

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Fra

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wn

, B

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RB

R

Va

sa

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Na

ga

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mo

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Ind

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r




Are

a (

mill

ion s

q.ft.)

Mall Supply Trend

0.00

2.00

4.00

6.00

8.00

10.00

2006 2007 2008 2009 (F) 2010 (F)

Year




La

ve

lle R

dO

ff P

ala

ce

Rd

Off C

un

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ha

m R

dU

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Rd

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kku

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Wh

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(Vill

as)

0

5,000

1,0000

15,000

20,000

-12

-10

-8

-6

-4

-2

0


Fra

ze

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wn

Be

nso

n T

ow

nR

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ny

Capital V

alu

es (

INR

/sq.ft.)

An

nu

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row

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ate

(%

)2

4

Ko

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ter

Rin

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Renta

l V

alu

es (

INR

/sq.ft./m

onth

)


0

100

200

300

400

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08

MG Road Brigade Road Commercial Street

Indiranagar - 100 Feet Rd Jayanagar - 4th Block, 11th Main Malleswaram - Sampige Rd

Koramangala - 80 Feet Rd Vittal Mallya Road New BEL Road

outlets of Canali, Dunhill, Tod's, Salvatore Ferragamo, Tag

Heuer, Mont Blanc and Ermenegildo Zegna among others.

On the other end of the retail spectrum, Total Hypermarket

began operations at the Total Mall on old Airport Road in 4Q

2008. Upcoming stores at this partially operational mall

include Benetton, McDonald's, Adidas, etc. With the Bengaluru

International Airport (BIA) becoming operational in 2Q 2008,

modern airport retailing also made an entry into the city this

year.

But what needs to be noted is that nearly 1.5 million sq.ft. of

supply was expected for the city in the beginning of the year

and only 23% was delivered. Limited supply addition helped to

keep the city's vacancy level to a low of about 3%. Of the

proposed 2008 supply, about 1.14 million sq.ft. has been

deferred, with nearly 82% of this staggered supply expected

to come up by the second half of 2009. The remaining has so

far been scheduled for completion by 2011. At present the

expected mall supply for 2009 is about 2.52 million sq.ft. over

approximately eight malls.

The vacancy rate for the city's malls stood at about 3.12% by

year end, which marginally increased from 2.20% in 3Q 2008.

This was largely because of the partially operational Total Mall

(Old Airport Road) coming up in 4Q 2008. Vacancy rates

were lowest in the CBD/off CBD, while the suburban area

had the highest vacant stock by end-2008. The net retail

absorption for the last quarter of 2008 stood at 154,282 sq.ft.

In the absence of leasing volumes in existing and upcoming

properties (together with the low turnover in existing malls

since 2007), it has been difficult to establish a rental trend for

the year which appears to be stagnant. However it is

anticipated that new transactions in the current retail market

scenario will more likely be at corrected rates.


In line with last year's trend, the city's main streets remained

more active than its malls in 2008, albeit at a much slower

pace during 2H 2008 in comparison to retail activities during

the same period in 2007. In the first quarter, Koramangala

especially saw the launch of quite a few standalone large

format outlets, such as, Star Bazaar from Trent Ltd and the

Landmark Group's Oasis Centre, which houses SPAR

Hypermarket, Lifestyle, Home Centre and Max Retail among

others. Other large format outlets to start operations in 1H

2008 were Reliance Mart, Spencer's Hyper and Croma.

Indiranagar 100 Feet Road, followed by Koramangala 80 Feet

Road, saw the maximum store launches in 4Q 2008. The last

quarter also saw the launch of Prestige Emporium (60,000

sq.ft) on MG Road, with fashion outlets of Stanza, Indigo

Nation, Provogue, Urbana, etc. More fashion and lifestyle

stores are expected to start operations here in 1Q 2009.

While ground floor rentals of a few established main streets

experienced a marginal upswing in 1Q 2008, by 2Q 2008

rental values peaked, and the market witnessed resistance to

the lease of retail spaces at those values. By 2H 2008 another

trend saw a few retailers, who had already committed to space

earlier in the year, beginning to re-negotiate on lease terms in

the light of the economic downturn.

In 4Q 2008 main street rentals saw an average rental

depreciation of approximately 15% across all micro-markets

over 4Q 2007, with Sampige Road, Malleshwarm (-28%), and

MG Road (-25%) witnessing the maximum fall in rentals. Main

street rentals in the city are likely to continue dipping in the

mid-term.

Outlook

Since 2H 2008 most branded retail players in the city held

new property deals at bay, because of the current economic

slowdown. As a fall-out rental corrections set in by end-2008.

With bottom lines of retail businesses getting affected because

of the comparatively conservative buying behaviour among the

city's shoppers over the previous year, in addition to peak

rentals earlier in the year, retailers have understandably kept

off fresh occupancy offers. This overall hesitant attitude is

likely to continue into 2009, till the retail market recovers.

At present both mall and high street rentals in the city are

expected to continue depreciating in the mid-term. Such a

correction might translate to a healthy sectoral growth in the

long term as realty prices make more business sense for

retailers. Considering the unavailability of large spaces at

operational malls and the limited supply set to come in by

end-2009, high streets are likely to remain active in Bangalore.

Note : �



The rental values indicated are base rents and do not include interest cost of


21

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)


0

100

200

300

400

500

600

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08

Koramangala Magrath Road Cunningham Road

Mysore Road Vittal Mallya Road



COMMERCIAL

The total supply of commercial office space across Pune was

9.41 million sq.ft. in 2008, recording an increase of

approximately 20% over the last year. Approximately 4.1

million sq.ft. of this supply was in SEZs. Peripheral locations

were the major contributors adding approximately 62%

towards supply, primarily catering to IT/ITeS sector. Kharadi

witnessed the maximum supply in 2008 totalling

approximately 2.3 million sq.ft. followed by Hadapsar and

Hinjewadi which witnessed 1.5 million sq.ft. and 1.1 million

sq.ft. respectively. Total supply of approximately 804,000 sq.ft,

has been deferred to 1Q 2009 owing to delays in construction

schedule of various projects. Majority of this supply was

concentrated in suburban micro market and catered to the IT/

ITeS sector.

Pune witnessed a total demand of approximately 3.65 million

sq.ft. in 2008 of which 1.73 million sq.ft. was absorbed during

the year and an additional 1.92 million sq.ft. was pre

committed for the supply expected to enter the market in

2009. The total absorption in 2008, including 1.29 million sq.ft.


Non IT IT SEZ IT Park

44%48%

8%


Other IT & ITeS BFSI

Shipping Telecommunication

89%

1%6%1%3%

Baner

Sanghvi

Dapodi

Khadki

Army Area

Mula River

Khadki

BazaarAundh

Sindhi

Colony

NCL

ColonySus Gaun

Range Hills

Ganesh Khind Rd

Adarsh

Nagar

Lohegaon

St Nagar

Viman

Nagar

Tingre

Nagar

Phulenagar

Parvati

Kalyani

Nagar

Wadgaon

Sheri

Kharadi

Cavalry

Line

Magarpatta

City

GhorpuriKoregaon

Park

Wanowri

Sasane

Nagar

Hadapsar

Wanwadi

Kondhwa

Khurd

Balaji

Nagar

Maharshi

Nagar

Navi Peth

Sangamvadi

Wadervadi

Parvati Hills

Parvati

Darshan

Kothrud

BavdhanGoklalenagar

Dattavadi

Hingne

Budrukh

Vittalvadi

Warje

Malvadi

KhadakwaslaWadgaon

Budruk

Pune

Cantonment

Ashok

Nagar

PUNE

Rakshak

Society

Bombay

Sappers

Regiment

Kavadewadi

Kasarwadi

Hinjewadi

Wakad

SB Road

FC R

d

JM R

d

MG

Rd

Bund

Garden

Sholapur Rd

Nagar Rd

Airpo

rt R

d

PUNE MARKET OUTLOOK

22

Commercial

Micro Market



Retail

Micro Market



Residential

Micro Market





absorbed from pre-commitments from before 2008,

accounted for 3.02 million sq.ft. 1Q 2008 witnessed the

highest absorption of 1.68 million sq.ft. mostly consisting of

pre-commitments from the previous years. 2Q 2008

recorded absorption of 570,000 sq.ft. where as the absorption

in the third and fourth quarter was 390,000 sq.ft. and 380,000

sq.ft. respectively.

The highest demand of 1.91 million sq.ft. was witnessed in 1Q

2008 led largely by pre-commitments of 1.42 million sq.ft. The

global market slowdown led to reduced demand in the

second half of 2008 which was entirely driven by absorption

with no pre commitments.

The primary demand driver was IT/ITeS sector followed by

other sectors such as BFSI, Shipping, Telecommunication, etc.

Hinjewadi witnessed the highest demand of commercial office

space in 2008 driven primarily by IT/ITeS sector companies

accounting for approximately 49% of the total demand. Out of

the total pre commitments of 1.92 million sq.ft. made during

the year, approximately 1.25 million sq.ft was witnessed in

Hinjewadi by the IT/ITeS sector, majority of which were seen

in the SEZs.

Pune has been witnessing an upward trend in the demand for

premium and internationally accredited Business Centres.

Vatika Business Center, Regus Business Center and MLS are

the premium business centres currently operating from the

micro markets of CBD, Off CBD and peripheral aresa of the

city respectively. Owing to the increasing demand of such

serviced office spaces, Regus expanded its operations in

Hadapsar in 3Q 2008.

Pune recorded an overall vacancy in the range of 16-20% in

2008 as compared to 8% the year before due to a

combination factors like excess supply and lower demand in a

slowing market. The peripheral micro markets witnessed

approximately 62% of the total supply during the year causing

it to also witness the highest vacancy of approximately 18-

20%. CBD and Off CBD locations witnessed vacancy in the

range of 10-15%, largely due to companies showing a

preference towards peripheral locations as they have lower

rental values. The first three quarters witnessed constrained

vacancy rates ranging from 4-7% which significantly increased

to approximately 16-20% in 4Q 2008.

The quarter – on – quarter growth in rentals was high in the

first two quarters due to buoyant demand witnessed in the

first half of 2008. With a large amount of supply entering the

Pune market in the third quarter, the rental values stabilized

across all micro markets in that period and showed clear signs

of softening thereafter in all micro markets in the fourth

quarter largely due to a slowdown in activities from the key

demand drivers like IT/ITeS and BFSI sectors. The steepest

decline of 17% was recorded in the peripheral locations such

as Hadapsar and Kharadi in 4Q 2008, as these markets had

attained unrealistic price points forcing them to undergo a

correction. Owing to general downturn in leasing activities

due to limited expansion plans by companies, coupled with

large vacant stock, the rental values in Kalyani Nagar and

Nagar Road witnessed a quarterly drop of 10% in 4Q 2008

followed by Aundh and Baner at 9%.

Outlook

Pune is expected to witness fresh supply of approximately

9.78 million sq.ft. in 2009 of which approximately 2.98 million

will be dedicated to SEZs and concentrated in the peripheral

micro markets. This large upcoming supply coupled with

subdued demand is likely to bring further correction in rental

values. The demand will continue to be driven primarily by the

ITeS and BFSI (Banking, Financial Services and Insurance)

1Q

- 0

3

2Q

- 0

3

3Q

- 0

3

4Q

- 0

3

1Q

- 0

4

2Q

- 0

4

3Q

- 0

4

4Q

- 0

4

1Q

- 0

5

2Q

- 0

5

3Q

- 0

5

4Q

- 0

5

1Q

- 0

6

2Q

- 0

6

3Q

- 0

6

4Q

- 0

6

1Q

- 0

7

2Q

- 0

7

3Q

- 0

7

4Q

- 0

7

1Q

- 0

8

2Q

- 0

8

3Q

- 0

8

4Q

- 0

8

Renta

l V

alu

es (

inr/

sq.ft./m

onth

)

0

10

20

30

40

50


60

70

80

Camp/ Bund Garden Rd SB Road Airport Road

Aundh / Baner Kalyani Nagar and Nagar Rd Viman Nagar

Hadapsar / Kharadi Sholapur Rd

90

Hinjewadi

PUNE MARKET OUTLOOK

23




Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

Gro

wth

Rate

(%

)

0

10

20

30

40

50

Ca

mp

/ B

un

dG

ard

en

Rd

. 0

4

8

12

16

20

60

70

80

SB

Ro

ad

Airp

ort

Rd

Au

nd

h/

Ba

ne

r

Ka

lya

ni N

ag

ar

an

d

Na

ga

r R

d

Vim

an

Na

ga

r

Ha

da

psa

r /

Kh

ara

di

Sh

ola

pu

rR

oa

d

Hin

jew

ad

i




Are

a (

mill

ion

sq

.ft.

)

Vacancy R

ate

(%

)


0

1

2

3

4

5

6

7

8

2001

0

2

4

6

8

10

9

10

12

14

16

18

2002 2003 2004 2005 2006 2007 2008

1 Above rentals are for warm shell facilities (shell and core facility, power, high side

air conditioning and 100% power backup)

sector companies but is expected to remain subdued due to

large supply which is expected to enter the market in 2009.

RESIDENTIAL

Pune witnessed a mix of township developments as well as

standalone apartment projects during 2008. Due to limited

availability of land in the central locations, large scale supply

was primarily concentrated in the peripheral and suburban

locations such as Hinjewadi, Hadapsar, Kharadi and Wakad.

With investors abstaining from the market it was essentially

an end users driven demand due to which Pune witnessed a

slowdown in demand in 3Q 2008. Conservative approach

from end users and successive increase in interest rates as

compared to 2007 led to slowdown in demand. However

during 4Q 2008, the city witnessed a drop in rental and

capital values in response to slow demand. Owing to

economic downturn and slowdown in IT/ITeS and other

service sectors, there was a definite erosion of job confidence

which directly impacted the end users who deferred their

purchase decisions. This also led to a negative demand supply

ratio with supply superseding demand. Various developers, in

order to boost their sales, were compelled to revise pricing

of their residential properties and promotional methods such

as discounts and incentives. Credit crunch to developers and

subdued end-user demand have resulted in delays in

construction of certain on going projects and postponement

of a few upcoming projects. Several on going projects have

been deferred by six to eight months and projects in planning/

initial construction stages are expected to be delayed further.

Rental Values

Rental values across both mid end and high end segment

remained stable till 3Q 2008 with an exception of micro

markets such as Koregaon Park, Bund Garden Road, Kharadi

and Kalyani Nagar, which observed appreciation in both high

end and mid end rental values in the 3Q 2008 mainly due to

increased demand from multinational clients. However, in 4Q

2008 the rental values across most micro markets witnessed

correction in both high and mid range properties. The global

economic slowdown affecting the hiring decisions of IT/ITeS,

BFSI and other sector companies led to slowdown in fresh

uptake of mid end residential apartments. This, along with

excess supply caused the mid end rental values to decline

across all micro markets in 4Q 2008. However limited

availability of high end lease-able units in the central locations

like Koregaon Park, Bund Garden Road, Kharadi and Kalyani

Nagar led to stabilization of rental values in 4Q 2008.

Capital Values

Capital values for both high end and mid end segment

remained stable across majority of the micro markets till 3Q

2008. It was only in 4Q 2008 that the capital values began to

PUNE MARKET OUTLOOK

24

Re

nta

l V

alu

es (

INR

/mo

nth

)

An

nu

al G

row

th R

ate

(%

)


0

50000

100000

150000

200000

250000

300000

-30

-20

-10

0

10

20

Ko

reg

ao

nP

ark

Bu

nd

G

ard

en

Kh

ara

di

Au

nd

h

Ka

lya

ni

Na

ga

r

Wa

no

wri

Low High Annual Growth Rate (%) 1 Average high end values are for properties ranging from 1,650 to 3,000 sq.ft.

2 Average mid end values are for properties ranging from 1,200 to 1,400 sq.ft.Source: Cushman & Wakefield Research



Rental Cycle

Market

Recession

Market

Bottoming

Market

Recovery

Market

Slowing

RentalTrough

StrengtheningMarket

RentalPeak

WeakeningMarket

4Q 2008

4Q 2009 (F)


Capital V

alu

es (

INR

/sq.ft.)

An

nu

al G

row

th R

ate

(%

)


Ko

reg

ao

nP

ark

Bu

nd

G

ard

en

Kh

ara

di

Au

nd

h

Ka

lya

ni

Na

ga

r

Wa

no

wri

0

2000

4000

6000

8000

10000

12000

-25

-20

-15

-10

-5

0


Re

nta

l V

alu

es (

INR

/mo

nth

)

An

nu

al G

row

th R

ate

(%

)


-25

-20

-15

-10

-5

0

5

10

15

Au

nd

h

Wa

ka

d

Wa

no

wri

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Ba

ne

r

Ka

lya

ni

Na

ga

r


Ko

reg

ao

nP

ark

Bu

nd

G

ard

en

Kh

ara

di

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)


0

100

200

300

400

MG Road Bund Garden Road/Koregoan Park

Ganeshkhind Road Nagar Road

Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08

decline. Due to excess supply entering the market, Wanowrie

witnessed the highest year on year decline of 20% across high

end residential segment followed by Kalyani Nagar (13%)

which attained high price points forcing it to undergo

correction in the last quarter.

In the mid end segment, Wakad recorded the highest decline

of 15% over the year due to excess supply of projects under

construction. With no new mid end supply Kalyani Nagar

witnessed stable rentals throughout the year. The only micro

market that witnessed a minor appreciation in mid end capital

values was Aundh which recorded a marginal increase of

about 3% in mid end capital values over the year. The boost to

this micro market was provided by the corresponding growth

of retail and commercial activities and improved connectivity

from various parts of the city that impacted the demand in

this location positively.

Outlook

The current economic condition will further lead to reduced

demand affecting the rental and capital values which are

expected to weaken across all micro markets in short to mid

term. Excess supply concentrated in the peripheral locations

may lead to larger correction in these locations.

Developers are expected to focus more on affordable

housing projects to meet the price-sensitive end user demand

in the city. Various developers who have started construction

work on their projects are already seen to have revised their

plans by reducing the apartment size and thus the price per

unit.

The supply for high end residential projects is expected to be

seen mainly in locations such as Koregaon Park, Hadapsar and

Kalyani Nagar. The prominent upcoming high end projects are

Matrix, Diva, Ritz by Marvel Developers and One North by

Panchshil developers. These projects are likely to be

completed in 2009-10. In the mid end segment, supply is

likely to be concentrated in the suburban and peripheral

locations such as Aundh, Baner, Kharadi, etc.

Chinchwad has emerged as a preferred residential location

owing to its good connectivity with the Mumbai-Pune

PUNE MARKET OUTLOOK

25

RETAIL

Leasing activity was concentrated more on the main streets

as compared to malls in 2008, with JM Road being the most

active of all main streets. Both malls and main streets rentals

witnessed correction during the second half of 2008 due to

slowdown in demand resulting from cautious expansion plans

by retailers.

Mall Development

Pune witnessed fresh mall supply of 218,000 sq.ft. in 2008 as

against 850,000 sq.ft. last year with only one mall namely

Kakade Centerport, commencing operations in 3Q 2008. The

mall has Westside and Odyssey as its anchor tenants and

houses several brands such as Next, The Body Shop, Louis

Philippe, Adidas, Reebok, Levi's and Giordano, among others. About 100,000 sq.ft. of anticipated supply for 2008 has been

deferred and is likely to enter the market in 2Q 2009. The

expected supply in 2009 therefore stands at approximately

995,000 sq.ft. spread across 4 malls.





expressway and old Mumbai-Pune highway. The micro market

is expected to witness a few large township developments

with state of the art amenities and facilities. The demand for

such developments is expected to be driven by employees

from the manufacturing sector, along with investors from Pune

as well as Mumbai. With the proximity to the new

international airport coming up in Chakan, this micro market

is likely to witness appreciation in capital values in long term.

Are

a (

mill

ion s

q.ft.)

Year

Mall Supply Trend

0

1

2

3

4

5

2006 2007 2008 2009 (F) 2010 (F)

An

nu

al G

row

th R

ate

(%

)


Au

nd

h

Wa

ka

d

Wa

no

wri

Ba

ne

r

Ka

lya

ni

Na

ga

r

0

1000

2000

3000

4000

5000

6000

-20

-15

-10

-5

0

5

Capital V

alu

es (

INR

/sq.ft.)


Ko

reg

ao

nP

ark

Bu

nd

G

ard

en

Kh

ara

di

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)


Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08

0

100

200

300

400

500

MG Road JM Road FC Road

Koregaon Park Aundh Bund Garden Road

PUNE MARKET OUTLOOK

26

The leasing activity on Ganeshkhind Road remained limited

pushing the vacancy levels to approximately 13%. This

resulted in a decline of approximately 14% in rental values

over the year in Ganeshkhind Road. However, micro markets

such as MG Road, Bund Garden Road and Koregaon Park

registered year-on-year growth in rentals in the range of 7-9%

largely due to lack of fresh supply entering the market during

the year.


The demand in 2008 was largely concentrated around the

main streets of JM Road and Aundh. JM Road was the most

active of all main streets with brands such as Reebok, Pepe

and Stanza marking their presence on JM Road and United

Colors of Benetton relocated to a larger store. Aundh has

also emerged as a preferred main street due to its proximity

to residential hubs. Additionally limited availability of space

coupled with high rental values on established main streets

has boosted demand for Aundh. Several brands such as Lee,

Wrangler, VIP, Adidas, United Colors of Benetton, X-cite, etc,

opened their stores on this main street during the year.

The main streets witnessed increased demand from retailers

in the beginning of 2008 due to lack of fresh mall supply as

well as limited availability of space in operational malls. This

resulted in appreciation of rental values across all main streets

in 1Q 2008. However, there was a slowdown in rental growth

in 2Q 2008 vis-à-vis 1Q 2008 and subsequently the rentals

declined in the second half of 2008. As a result of the

economic uncertainty, the retailers adopted cautious

expansion strategies which resulted in a slowdown of demand

for retail space during the second half of 2008, hence leading

to rental correction across most main streets. Overall, as

against 2007, the rental values witnessed an appreciation

across most micro markets with JM Road witnessing the

highest year-on-year appreciation to the

tune of 48% followed by Aundh at 29%. MG Road was an

exception witnessing correction of approximately 13% in

rental values over the year. The rental values on MG Road

reached its peak during the first half of 2008 pressuring store

viabilities. Subsequently the rentals declined in the last two

quarters.

Outlook

Both malls and main street rental values are likely to weaken

in short to medium term due to restrained expansion plans

by retailers. The fresh mall supply that is expected to enter

the market in 2009 may further pressurize mall rentals. The

slowdown in demand is likely to lead to further weakening of

rental values in most main streets in short to medium term.

However, main street of MG Road may witness stable rentals

due to higher demand and lack of available leasable space.Source: Cushman & Wakefield Research



COMMERCIAL

The total absorption for the year 2008 was approximately

4.02 million sq.ft., considerably lower than the absorption of

approximately 7 million sq.ft. witnessed in the previous year.

Of this 4.02 million sq.ft. approximately 1.95 million sq.ft. was

pre committed absorption while additional fresh pre

commitments were recorded at 680,000 sq.ft. for the year

2009, bringing the demand estimate at 3.33 million sq.ft for

the year 2008. Of the 9.8 million sq.ft. supply, approximately

54% was contributed by IT Parks, down from the 75%


39%

Commercial IT SEZ IT Parks

7%

54%


BFSI IT & ITeS Others

Infrastructure Manufacturing

65%

14%

13%

3%

5%

witnessed last year which is a difference of approximately 2

million sq.ft. This lowering trend is expected to continue in the

future owing to the large amount of existing vacant IT space

coupled with the STPI tax benefits expiring as of March 2010.

Approximately 39% (3.87 million sq.ft.) of the total supply was

recorded as SEZ, with the remainder 7% (652,000 sq.ft.) being

non IT commercial space, almost double when compared to

the 343,000 sq.ft. in 2007. During the year, the third quarter

witnessed the highest absorption of 1.73 million sq.ft. in line

with the highest supply of 3.3 million. 3Q also witnessed the

CHENNAI MARKET OUTLOOK

27

KoratturKorattur Eri Villivakkam

Perambur

Vyasarpadi Royapuram

Old

Washermanpet

George

Town

SowcarpetPeriyamet

Choolai

Ayanavaram

KilpaukThirumangalam

Anna

Nagar

Ambattur

Industrial

Estate

MaduraivoyalKoyambedu

Vanagaram

Valasaravakkam

VadapalaniChoolaimedu

Mowlivakkam

Porur

Nandambakkam

St Thomas

MtAlandur

MadipakkamSriperumbudur

Pallavaram

Guindy

IIT Madras Tharamani

Adyar

Adyar River

Besant

Nagar

Santhome

Beach

Mylapore

Nandanam

Teynampet

Beach

Royapettah Marina

Theyagaraya

Nagar

Triplicane

Chintadripet

CHENNAI

Puzhuthivakkam Velachery

Perungudi

PallikaranaiRajiv Gandhi

Salai

Palavakkam

Kotivakkam

Valmiki

Nagar

Thiruvanmiyur

Sardar Patel Rd

Jawaharlal

Nehru Rd

Arcot Rd

NSK Salai

Poonamallee High RdGH Rd

Man Rd

New Avadi RdMTH Rd

Dairy Rd

AirportGST Rd

Nungam

bakkam

High R

d

Cathedral Rd

KNK Rd

Poes

Garden

RA Puram

RK Salai

Usman

Rd

Purusavakam

High Rd

Boat Club

Anna Salai

Commercial

Micro Market



Retail

Micro Market



Residential

Micro Market





Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

Gro

wth

Rate

(%

)


CB

D-A

nn

aS

ala

i, R

K S

ala

i(C

orp

ora

te)

CB

D-A

nn

aS

ala

i, R

K S

ala

i(I

T S

pa

ce

)

Off C

BD

-T.N

ag

ar,

Alw

arp

et

(Co

rpo

rate

)

Su

bu

rba

n-

Gu

ind

y

0

10

20

30

40

50

60

70

80

90

Suburb

an

Am

battur

Suburb

an-

Peru

ngudi,

Ta

ram

an

i

Periphera

l-R

ajiv

G

andhi S

ala

i -25%

-20%

-15%

-10%

-5%

0%

Off C

BD

-T.N

ag

ar,

Alw

arp

et

(IT-S

pa

ce

)

2007 2008 Growth Rate (%)

weakening of rentals especially in the CBD and off CBD areas

with developers willing to close out on larger deals and

agreeing to tenant-favourable terms and lower rentals.

The main demand drivers were IT/ ITeS, BFSI, Logistics and

Telecom in the CBD and Off CBD regions. CBD witnessed

supply of 222,000 sq.ft. of which 54% (120,000 sq.ft.) was

absorbed during the year. Off CBD had the highest

percentage absorption when compared with the supply that

came in during the year. Areas such as T. Nagar, Chetpet and

R.A. Puram, witnessed the highest quantum of absorption

within the Off CBD region and continued to remain the

preferred destination for corporates during the year. Off CBD

witnessed absorption of 150,000 sq.ft. for each quarter,

except for 4Q when absorption dipped to 60,000 sq.ft.

Although rentals dipped in September, 4Q saw a drop in space

absorption with an uncertain economic outlook resulting in

postponed of expansion plans of various firms.

Suburban areas recorded the highest quantum of supply and

absorption during the year although excessive speculative

supply in Ambattur of approximately 2.16 million sq.ft.

resulted in an acute oversupply situation in this micro market.

This oversupply could be noted in the rental movements as

the rents corrected by 13% during 3Q and further in 4Q

bringing it to a drop of 22% from its peak in 2008. Although

Mt. Poonamallee Road witnessed the highest quantum of

supply amounting to 2.8 million sq.ft. the pre-commitments in

the SEZs here ensured low vacancy rates. Rentals corrected

in other suburban areas only in the 4Q mainly due to negative

market sentiments and economic uncertainty. IT/ ITeS, BFSI &

Telecom sector continued to be the main demand drivers in

the suburban areas, although the year also saw the rise of

manufacturing corporations as space occupiers.

Vacancy sharply increased from 13-15% in 2Q across the city

to approximately 18% at year end. This surge can be mainly

attributed to the speculative supply seen in the suburban

markets increasing the suburban vacancy rate from 6-8% in

2Q to 18% at year end. Peripheral vacancy rates continued to

remain above 40% although the deferment and slowdown in

supply resulted in arresting the already acute vacancy situation.

During the year, peripheral regions saw supply of 2.2 million

sq.ft. of which approximately 1 million sq.ft. was absorbed.

Rents stabilized in 2Q for the remainder of the year, although

the current falling rentals in suburban areas are now expected

to bring down rents further in the peripheral regions as well.

Outlook

The supply spill over of approximately 2.6 million sq.ft. from

2008 is likely to increase supply for 2009 projected at

approximately 15.7 million sq.ft. of which approximately 7.3

million sq.ft. is accounted by SEZ. New SEZ projects and large

scale campus developments of companies are likely to be

deferred owing to a sea change in the business environment of

companies that were previously in expansion mode. Whilst

demand is likely to be driven by the IT/ ITeS sector, companies

intending to commit space are likely to tread carefully in order

to control their financial exposure.

As funding options remain scarce and an extended dip in

demand continues to plague market sentiments along with

increasing vacancies, developers are likely to offer more

innovative commercial terms to prospective tenants. For

example, lease tenures are expected to reduce from the

current 5 years to approximately 2 to 3 years with a reduced

lock in period while demand for fully furnished space is

expected to increase due to an apparent reduction in capital

expenditure by corporations. The right to sublease is expected

to be a strong point of negotiation between tenants and


28


Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

0

10

20

30

40

50


60

70

80

CBD-Anna Salai, RK Ralai (Corporate) CBD-Anna Salai, RK Ralai (IT Space)

Off CBD-T.Nagar, Alwarpet (Corporate) Off CBD-T.Nagar, Alwarpet (IT Space)

Suburban-Guindy Suburban-Ambattur

90

Suburban-Perungudi-Taramani Peripheral-Rajiv Gandhi Salai

1Q

- 0

3

2Q

- 0

3

3Q

- 0

3

4Q

- 0

3

1Q

- 0

4

2Q

- 0

4

3Q

- 0

4

4Q

- 0

4

1Q

- 0

5

2Q

- 0

5

3Q

- 0

5

4Q

- 0

5

1Q

- 0

6

2Q

- 0

6

3Q

- 0

6

4Q

- 0

6

1Q

- 0

7

2Q

- 0

7

3Q

- 0

7

4Q

- 0

7

1Q

- 0

8

2Q

- 0

8

3Q

- 0

8

4Q

- 0

8



Are

a (

mill

ion s

q.ft.)

Va

ca

ncy R

ate

(%

)


0

2

4

6

8

10

12

2002

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008



developers; additionally spaces signed at premium rates in

areas such as RK Salai, Nungammbakam High Road, MRC

Nagar and Guindy are likely to be renegotiated in the near

future.

Areas such as Ambattur, which suffers from an oversupply of

non SEZ - IT developments, will continue to witness

weakening rentals and deter corporate space take up unless

the government and/or developers improve the infrastructure

in the vicinity. Certain IT Parks within the city limits are

expected to apply for conversion back to non-IT park status,

in light of the reduced IT demand and ambiguity over STPI tax

exemption.

Rental Cycle

Market

Recession

Market

Bottoming

Market

Recovery

Market

Slowing

RentalTrough

StrengtheningMarket

RentalPeak

WeakeningMarket

4Q 2009 (F)

4Q 2008

RESIDENTIAL

In Chennai, the demand for apartments has progressively

increased over the past few years as compared to the

traditional independent housing bias that used to be

previously predominant. This is mainly attributable to the

investor population and rise in the number of nuclear families,

resulting in an increase in the sales for apartments and

residential townships announced.

Capital Values

The affluent continued to favour coveted central locations of

Boat Club, Poes Garden, RA Puram etc., and the former two

locations witnessed launches of ultra luxury apartments. The

high demand for quality housing ensured the steady rise of

capital values ranging from 12-28% in these areas.

Nungambakkam did not witnesses any launch in the high end

market during the year of 2007 and the launch of Patio by

Vijaya Shanti during 2008 met the pent up demand in this area

leading to the phenomenal rise in capital values of 71% over

the previous year. However, this rise has been skewed heavily

by this particular project and on an average the increase in

values was more subdued.

Chennai residential sale market continued to remain insulated

from the correction that is being witnessed in the other

sectors of the city and across other parts of the nation. The

capital values across Chennai saw stabilization in the second

half of the year after witnessing a steep incline during the first

half of the year. Thus, most micro markets witnessed double

digit annual appreciation in capital values.

The city witnessed growth during the year in two main

corridors: in the south which includes areas such as

Tambaram, Velachery, Rajiv Ghandi Salai and GST Road and in

the west, the suburban markets of Mogappair, Porur,

Virugambakkam and Nandambakkam. These markets

witnessed capital appreciation of 20-40% over last year in the

mid end segment with strong demand owing to the proximity

to work and infrastructural initiatives undertaken by the

government in these areas. SINK's and DINK's (Single income

no kids and double income no kids) showed preference

towards residences closer to their workplace while families

with children took into consideration social infrastructure

such as schools & recreation centres thus preferring to limit

their search to the suburban areas. On the Rajiv Ghandi Salai

stretch, beyond Sholinganalur, the price movement was project

specific rather than location specific. Additionally,

infrastructure initiatives like metro connectivity, construction

of the Inner Ring Road (between GST road and NH4) etc.

have brought additional demand to north-western regions of

Anna Nagar and Mogappair.


29






Capital V

alu

es (

INR

/sq.ft.)

An

nu

al G

row

th R

ate

(%

)


0

5,000

10,000

15,000

20,000

25,000

30,000

0

10

20

30

40

50

60

70

Bo

at

Clu

b

80

R. A

. P

ura

m

Ad

ya

r

Po

es G

ard

en

Nu

ng

am

ba

kka

m

An

na

Na

ga

r

Kilp

au

k


R. A

Pu

ram

0

2,000

4,000

6,000

8,000

0

5

10

15

20

25

30


Capital V

alu

es (

INR

/sq.ft.)

An

nu

al G

row

th R

ate

(%

)

10,000

12,000

Ad

ya

r

Ra

jiv g

an

dh

iS

ala

i(P

eru

ng

ud

i)

Ve

lach

ery

Po

es G

ard

en

T. N

ag

ar

Nu

ng

am

ba

kka

m

An

na

Na

ga

r

Kilp

au

k

35

40

45

14,000

16,000

18,000


RETAIL

Chennai continues to witness a dearth of quality retail supply

across the city and the deferment of various malls added to

the woes of high end retailers seeking to enter Chennai. The

city witnessed correction in retail rentals during the fourth

quarter as economic uncertainty led to a more conservative

attitude from both consumers and retailers alike.

Mall Development

The dry spell of 2007 continued in the first 3 quarters of 2008,

while in the last quarter Chennai witnessed a supply of 0.15

million sq.ft. with the long overdue Ampa Mall becoming

operational. The proposed 1.15 million sq.ft. of mall space,

spread over 2 malls, that was expected during the year 2008

has been deferred into 2009. The years 2010 and 2011 are

projected to witness approximately 14 malls (approximately


30

Re

nta

l V

alu

es (

INR

/mo

nth

)

Annual G

row

th R

ate

(%

)


0

10,000

20,000

30,000

40,000

50,000

60,000

0

10

20

30

40

50

60

70

R. A

. P

ura

m

Ad

ya

r

Ra

jiv G

an

dh

iS

ala

i(P

eru

ng

ud

i)

Ve

lach

ery

Po

es G

ard

en

T. N

ag

ar

Kilp

au

k

Nu

ng

am

ba

kka

m

An

na

Na

ga

r

80

90

100


Are

a (

mill

ion s

q.ft.)

Mall Supply Trend

1.00

2.00

3.00

2006 2007 2008 2009 (F) 2010 (F)

Year

0.00



Rental Values

While the rental markets in the high end segment continued

to be buoyant during the first half of the year, it witnessed

stabilisation in the last quarter. The Tamil Nadu Electricity

Board (TNEB) announced load shedding in various parts of

the city, which resulted in properties, with 100% power back

up, commanding a hefty premium in rentals. Landlords in the

high end rental market are increasingly providing the lessee

with the power back up option in order to command a higher

rental.

The mid end rental markets continued to remain stable for

the whole year. Additionally the landlords continued to have a

conservative attitude as most refrained from increasing rent

substantially and were willing to negotiate rents in order to fill

the vacancy. Leasing volumes continued to remain robust for

the entire year and are expected to remain so in the near

future.

Outlook

The Chennai Master Plan 2026 is expected to provide the LIG

and EWS housing sector with the necessary fillip and is

expected to bring a change in the residential scenario of

Chennai especially in the peripheral regions. Developers are

expected to focus on LIG and EWS housing due to the

incentives offered in the master plan 2026 of extra FSI,

relaxation in development control rules and transfer of

development rights. Additionally market dynamics will also

prompt developers to focus on the affordable category and

thus focus on value housing thus providing stronger

infrastructure and less frills such as clubs, swimming pools etc.

This can be seen in some of the recent announcements by

developers to create projects along these lines.

The relaxation on costal regulation zone constructions is likely

to generate renewed interest by developers and investors

along the East Cost Road. Rajiv Ghandi Salai is expected to

continue to see weakening capital values due to large supply

entering the market in 2009, delays in existing projects causing

investors to exit at a discounted value, weak social

infrastructure which in turn is likely to prompt more focus on

GST Road that boasts of a relatively stronger physical and

social infrastructure in this region.

GST Road is expected to be a preferred destination, as it

enjoys good road and rail connectivity to all parts of the city.

Additionally, being well connected to the IT and industrial

corridor has created demand for both middle income and

premium residential buildings in this locality.




Bo

at C

lub

0

50,000

100,000

150,000

200,000

0

10

20

30

40

50

60


Renta

l V

alu

es (

INR

/month

)

Annual G

row

th R

ate

(%

)

R.A

. P

ura

m

Po

es G

ard

en

Nu

ng

am

ba

kka

m

An

na

Na

ga

r

Kilp

au

k

250,000

300,000

Ad

ya

r


Renta

l V

alu

es (

INR

/sq.ft./m

onth

)


0

50

100

150

200

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08

250

Khadar Nawaz Khan Rd Anna Nagar 2nd Avenue Nungambakkam High Rd

Cathedral Rd - RK Salai Adyar Main Rd Purusavakam High Rd

Usman Rd - South Khadar Nawaz Khan Rd

Note : �The rental values indicated are base rents and do not include interest cost of




31

6.2 million sq ft.); however, it is anticipated that a majority of

this mall supply will not be operational as per schedule since

several of these projects are yet to commence construction.

Malls in their initial stages of construction are actively seeking

to sign up with key anchors like Hyper markets, department

store and multiplexes.

During the start of the year, approvals were the main concern

with most of the malls, although towards the latter half

apprehensions regarding liquidity and construction schedules

became more apparent. Although mall rentals witnessed

correction, the quantum of this drop was not comparable to

other cities that had recorded significant appreciation over

the years and hence had a larger scope for correction.

Additionally due to the continuous deferment and limited

supply entering the market, mall rentals in Chennai witnessed

and are expected to continue witnessing a lower correction

in percentage terms as compared to other cities as well as

against most high streets within the city. Projects in the

central and western regions of Chennai are being closely

watched by retailers - wanting to establish a footprint across

the city but are weary of the delays; these projects are

expected to witness a surge in leasing as the mall nears

completion. Various international brands looking at

establishing a footprint in the city are considering options in

the more mature markets and thus want to be located

centrally.


Due to the low mall supply, retailers maintained a bias

towards main streets and especially towards stand alone

stores. Developments offering larger floor plates in

established retail precincts continued to remain sought after

and this trend is expected to continue into the near future.

New high end retailers continued to explore options in the

established markets of Khadar Nawaz Khan Road and

Nungambakkam High Road due to the presence of high end

catchments and large visibility. However, limited availability of

quality space caused them to refrain from signing up on space

during the year. Established regional retailers continued to

expand their operations into new micro markets especially

focusing on the peripheral micro market of Rajiv Ghandi Salai

in order to gain first mover advantage and expand their

presence across the city. Demand for retail space relatively

decreased during the last quarter leading to lower number of

transactions causing the rentals to correct across all micro

markets.

Outlook

Retailers are cautious about their financial commitments in

any location, which in turn will prolong negotiations despite

their interest in the city. Traditionally south has been working

on higher security deposits, but due to the increasing rentals

in previous years the deposit amount have become substantial

and this amount is expected to receive increased emphasis by

retailers during future negotiations.

Infrastructure developments announced during the year and

the new city master plan are changing the landscape of the city

as flyovers and MMRTS, metro is making retailers and

developers alike reconsider their positioning in the market, in

order to maximize footfalls and visibility.

Rentals across Chennai are expected to further correct from

their current levels across all micro markets. As retail space

per person in Chennai is very low, the limited future supply

will ensure the correction to not be as sharp as other cities.

Emerging high streets such as Wallace Garden Road, Anna

Nagar 3rd Avenue are expected to witness sharper correction

as compared to established high streets like Nungambakkam

High Road, Cathedral Road - RK Salai, T. Nagar (pondy bazzar) nd

and Anna Nagar 2 Avenue to name a few. Premium retailers

would reconsider markets such as Khader Nawaz Khan Road nd

in light of the correction while Anna Nagar 2 Avenue, T.

Nagar, are expected to witness demand from lifestyle brands

due to the heavy footfalls and strong catchments of these

markets. Rentals are expected to stabilize towards 2H 2009

with demand is likely to improve considerably from current

levels as the falling rentals will enable retailers to set up

profitable stores.


Renta

l V

alu

es (

INR

/sq.ft./m

onth

)


0

50

100

150

200

250

300

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08

Chennai - CBD (central) Chennai - Suburbs (western)


79%


2%2%2%

15%

BFSI IT & ITeS Others

Infrastructure Consulting

COMMERCIAL

Hyderabad witnessed approximately 3.84 million sq.ft. of

fresh supply across all micro markets during 2008 as

compared to 4 million sq.ft. witnessed in the previous year.

Suburban regions comprising of Madhapur and Gachibowli

witnessed majority of the supply (69%) including 930,000

sq.ft of SEZ supply. Peripheral region of Pocharam witnessed

360,000 sq.ft. of SEZ development and with this the total SEZ

supply in the city stood at nearly of 1.29 million sq.ft. The IT/

ITeS sector continued to be the prime focus amongst

developers as nearly 85% of the 2008 supply was targeted

towards this sector with IT SEZ supply being estimated at

34% of the total.

Although, nearly 7 million sq.ft. of fresh supply was anticipated

to be available during 2008, only 55% of the same

materialized. Most of the projects in the suburban micro

market were deferred due to the prevailing uncertainties in

the economy, thus adversely impacting the real estate sector

at large. Fourth quarter of 2008 witnessed the highest supply

Gachibowli

Hitech CityMadhapur

SR Nagar

Begumpet

Ameerpet

Yousufguda

Jubilee

Hills

Banjara

Hill Punjagutta

KBR

National Park

University of

Hyderabad

Sanjeevajah

Park

MarredpallyNH9

Malkajgiri

NTR

Garden Tarnaka

Nacharam

Industrial Area

Habsiguda

Osmania

University

Padmarao

Nagar

Ram Nagar

Nallakunta

Hussain

Sagar

Masab

TankArmy Area

Mehdipatnam

Vijay Nagar

Colony Nampally

Karwan

Langar

House

Tolichowki

Military Area

Manikonda

Shaikpet

Mumbai Rd

Osman Sagar Rd

Rambagh

Nehru

Zoological

Park

Chintalmet

Katedhan

Industrial Area

Mir Alam

Tank

Charminar

Lal

Barwaza

Nawab

Saheb Kunta

Rajendra

Nagar

Musa River

Hymayat Sagar Rd

Premavathi

Pet

Budvel

NH 7

Hayat

Himayat

Sagar

Mrigavani

National Park

Inner Ring Rd

Kanchan

Bagh

Gurram

Guda

NH 9

LB Nagar Mahavir Harini

Vanasthali

National Park

Vanasthalipuram

Saidabad

Colony

Dilsukhnagar

Nagole

Uppal Kalan

Amberpet

Malakpet

Ramanthapur

Kachiguda

AbidsHYDERABAD

Shamsabad

Uppal

Warangal Rd

LB Nagar Rd

Nagole Rd

Himayat

Nagar

Kukatpally

Somajiguda


IT Developments Non-IT IT SEZ

34%

51%

15%

HYDERABAD MARKET OUTLOOK

32

Commercial

Micro Market



Retail

Micro Market



Residential

Micro Market





(46%) of approximately 1.78 million sq.ft. due to delayed

completion of projects. Shrinking liquidity with developers,

staggered consumer demand and increase in overall cost of

construction are the prominent factors responsible for delay

in project completion.


Are

a (

mill

ion s

q.ft.)

Va

ca

ncy R

ate

(%

)0

1

2

3

4

5

2001

0

2

4

6

8

10

12

14

16

18

20

2002 2003 2004 2005 2006 2007 2008


Office space demand declined by nearly 46% to register

approximately 2.39 million sq.ft. in 2008 when compared to

4.47 million sq.ft. recorded in the previous year. Overall

slowdown in the Indian economy at large and its immediate

consequences on the domestic IT/ITeS sector were the

primary attributes for depressed demand. Of the total

demand of 2.39 million sq. ft. in the year 2008, absorption

constituted approximately 1.33 million sq.ft. (inclusive of pre-

committed absorption totaling 249,000 sq.ft.) and the balance

constituted of fresh pre-commitments entirely in IT/ITeS

developments which are likely to be absorbed in the first half

of 2009. The suburban micro market accounted for 933,600

sq.ft. (70%) of the total absorption which was followed by the

peripheral micro market of Pocharam and Off CBD micro

markets each accounting nearly 11% of the total absorption.

CBD, Off CBD and Prime Suburban micro markets witnessed

annual rental growth largely due to the demand-supply

mismatch coupled with limited Grade-A supply options.

However, rental appreciation was prominent in the first half

of the year with the second half witnessing a dip in select

markets. Rentals in the suburban region including IT SEZ

witnessed marginal correction in the last quarter in order to

re-align with market expectations and excess supply built up.

Pocharam, even while being an emerging peripheral micro

market witnessed stable rentals as supply outstripped the

demand with an obvious downward pressure on rentals and

correction taking place in the office space segment.

The overall vacancy rates in the city were estimated in the

range of 9-14% as against 3-4% during the first quarter of the

year. This largely indicated the increasing gap between supply

and space uptake due to demand slowdown. Vacancy rate in

both CBD and Off CBD micro markets was nearly 11%

where as the same for prime suburban areas was the highest

at approximately 14% due to un-leased concentration of

Grade B stock. Suburban areas of Madhapur and Gachibowli

witnessed vacancy of nearly 9% due to un-leased stock across

Non-SEZ development.

Outlook

Fresh office space supply in 2009 is expected to be nearly 5

million sq.ft. inclusive of nearly 3 million sq.ft. of IT SEZ

developments, majority of which are scheduled for the first

half of the year. This additional supply is likely to further

increase the existing supply-demand gap resulting in

increasing vacancy.

Office space demand in 2009 will be similar to or even lesser

than that of 2008 as the IT/ ITeS sector which was earlier

growing at nearly 20 to 25% per annum will now be limited


33

Renta

l V

alu

e (

INR

/sq.ft./m

onth

)

0

10

20

30

40

50


60

70

CBD Off CBD Prime Suburban

Suburban Peripheral I Peripheral II

1Q

- 0

3

2Q

- 0

3

3Q

- 0

3

4Q

- 0

3

1Q

- 0

4

2Q

- 0

4

3Q

- 0

4

4Q

- 0

4

1Q

- 0

5

2Q

- 0

5

3Q

- 0

5

4Q

- 0

5

1Q

- 0

6

2Q

- 0

6

3Q

- 0

6

4Q

- 0

6

1Q

- 0

7

2Q

- 0

7

3Q

- 0

7

4Q

- 0

7

1Q

- 0

8

2Q

- 0

8

3Q

- 0

8

4Q

- 0

8

Rental Cycle

Market

Recession

Market

Bottoming

Market

Recovery

Market

Slowing

RentalTrough

StrengtheningMarket

RentalPeak

WeakeningMarket

4Q 2008

4Q 2009 (F)





Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

Gro

wth

Rate

(%

)

0

10

20

30

40

50

CB

D

-10

-5

0

5

10

15

2060

70


25

Off C

BD

Prim

eS

ub

urb

an

Su

bu

rba

n

Pe

rip

he

ral

I

Pe

rip

he

ral

II




to 10 to 15%. Madhapur and Gachibowli will continue to

remain as preferred IT/ ITeS region over the other micro

markets due to comparatively low occupancy cost and

availability of Grade A supply. Rentals across all micro

markets inclusive of SEZ rentals are expected to see further

correction by first half of 2009, with stabilization likely in

select regions in the second half. Some of the pre-

commitments as well already committed space may also get

vacant with companies preferring just-in time deals rather

than holding large vacant spaces like they use to do earlier.

RESIDENTIAL

Established residential micro markets of Jubilee Hills, Banjara

Hills, Srinagar Colony, Somajiguda, Punjagutta, Himayathnagar,

Begumpet, Marredpally and Sainikpuri etc. witnessed mid-

segment standalone apartment projects through the year

2008. However, limited land availability for new developments

within the city led to large scale developments taking place in

suburban and peripheral regions of the city. Apart from

scattered standalone apartment projects by local developers,

planned apartment projects were visible in Andhra Pradesh

Police Academy (APPA) Junction in south-west, Kukatpally in

north-west, Nagole, LB Nagar in east; Kondapur, Gachibowli

and Nallagandla in west and ECIL X Road in north-east to

name a few.

Few select precincts of the city witnessed development of

gated communities comprising of villas and duplex houses.

These regions include Kompally, Medchal Road, Dundigul,

Yapral and Shamirpet in the north; Ghatkesar, Cherlapally,

Nagole in the east, Tellapur in the west; Qutbullapur and

Bachupally in north-west as well as Shamshabad, Kothur and

Sri Sailam Road in south of Hyderabad. However, currently

most of these regions lack adequate social infrastructure and

therefore witnessed a sluggish response from end users.

With the global economic meltdown dampening overall sales

prospects, several property developers in the city resorted to

re-pricing of properties to boost sluggish sales and thereby

expedite completion of projects with significant bookings by

customers. Various projects set for completion during the

year were deferred as developers faced liquidity issues. In

certain cases, developers even delayed the launch of new

projects anticipating passive response from buyers. This is

primarily attributed to buyers shying away to make capital

commitments given the uncertainties in the economy coupled

with over heated property rates making them unaffordable.

Fresh residential supply took a back seat as the prime

concern with developers was to make prices affordable for a

larger mass of potential buyers.

On the other end of the spectrum, developers such as Bharat

Infratech (Bharat Iconia), Lodha Developers (Lodha Bellezza),

Radha Realty (U 31) and Emaar-MGF (Boulder Hills) etc.

announced launch of ultra luxury residential projects in the

second half of the year while a handful such as Janapriya

Engineers Syndicate, Modi Properties and Manjeera Projects

etc. focused on affordable housing. National developers such

as DLF Homes and Bangalore based Mantri developers to

name a few announced launch of apartment projects in the

city but are yet to start construction activities.

Capital Values

Average capital values for high-end properties witnessed

lesser impact despite the slump and overall decrease in

residential demand. As of December 2008, annual appreciation

in capital values was estimated between 9 to 20% barring

Himayathnagar and West and East Marredpally where

average values declined by 3% and 5% respectively over the

previous year.

As the effect of slowdown was more pronounced during the

second half of 2008, the changes in capital values during that

time frame reflect the actual correction taking place in the

market. During June to December 2008, average values eased

between 7 to 11%. However, Banjara Hills and Jubilee Hills

being the prime residential locations did not succumb to any

negative correction during the second half of the year.


34

An

nu

al G

row

th R

ate

(%

)


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

-10

-5

0

5

10

15

20

25

Ba

nja

ra

Hill

s

Ju

blie

e

Hill

s

Him

aya

tna

ga

r

Be

gu

mp

et

So

ma

jigu

da

Ma

dh

ap

ur

Ga

ch

ibo

wli

Ku

ka

tpa

lly

West &

East

Ma

rre

dp

ally


Capital V

alu

es (

INR

/sq.ft.)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

-4%

-2%

0%

2%

4%

6%

8%

10%A

nn

ua

l G

row

th R

ate

(%

)


Ba

nja

ra

Hill

s

Ju

blie

e

Hill

s

Him

aya

tna

ga

r

Be

gu

mp

et

So

ma

jigu

da

Ma

dh

ap

ur

Ga

ch

ibo

wli

Ku

ka

tpa

lly

We

st &

Ea

st

Ma

rre

dp

ally


Capital V

alu

es (

INR

/sq.ft.)



Banjara Hills, Jubilee Hills and Himayathnagar registered

marginal decline in average capital values by nearly 2% to

stabilize at INR 3,800 and INR 2,800 per sq.ft. respectively.



Are

a (

mill

ion s

q.ft.)

Year

Mall Supply Trend

0.00

1.00

2.00

3.00

4.00

2006 2007 2008 2009 (F) 2010 (F)

5.00

RETAIL

Mall Development

Mall stock in the city was recorded at approximately 550,000

sq.ft. by the end of 2008. Ashoka Metropolitan mall at Banjara

Hills Road No.1 getting operational during first quarter of

2008 added approximately 150,000 sq.ft. to the retail mall

stock. Mall rentals in Banjara Hills Road No.1 and

Himayathnagar witnessed downward correction by 20% and

4% respectively over the previous year as it reached high price


35

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

-20

-10

0

10

20

30

40

50

60

70

80

An

nu

al G

row

th R

ate

(%

)


Ba

nja

ra

Hill

s

Ju

blie

e

Hill

s

Him

aya

tna

ga

r

Be

gu

mp

et

So

ma

jigu

da

Ma

dh

ap

ur

Ga

ch

ibo

wli

Ku

ka

tpa

lly

We

st &

Ea

st

Ma

rre

dp

ally

Re

nta

l V

alu

es (

INR

/mo

nth

)


An

nu

al G

row

th R

ate

(%

)


Ba

nja

ra

Hill

s

Ju

blie

e

Hill

s

Him

aya

tna

ga

r

Be

gu

mp

et

So

ma

jigu

da

Ma

dh

ap

ur

Ga

ch

ibo

wli

Ku

ka

tpa

lly

We

st &

Ea

st

Ma

rre

dp

ally

0

5,000

10,000

15,000

20,000

25,000

30,000

-15%

-10%

-5%

0%

5%

10%

15%

Re

nta

l V

alu

es (

INR

/mo

nth

)




Average values in West & East Marredpally, Madhapur as well

as Gachibowli stabilized at last year's values.

Rental Values

Lack of fresh supply coupled with buoyant demand for high-

end residential properties across Banjara Hills and Jubilee Hills

led to average rentals hardening by 70% and 56% respectively

over the last 12 months. These two premium residential

locations have high concentration of independent villas, duplex

houses and luxury apartments. The demand for properties in

these regions being insulated to the economic slump

witnessed rise in rentals. Begumpet and Somajiguda witnessed

45% annual appreciation mostly due to supply lagging demand.

Himayathnagar was the only location that witnessed

correction in rentals of high end properties by 7% over the

similar time frame.

Average rentals in the mid-segment started weakening mostly

in the second half of 2008. Banjara Hills and Jubilee Hills,

Begumpet & Somajiguda as well as Kukatpally witnessed

annual rental increment of 2%, 11% and 8% respectively due

to sustained activity in the existing stock. However, it is

interesting to note that during the second half of 2008, these

locations saw a decline in rental growth between 7 to 15%

due to obvious slowdown in the demand from end users.

Average mid end rentals in Himayathnagar being already

overheated saw maximum negative correction to the extent

of 13% followed by Madhapur and Gachibowli each witnessing

negative 2% correction.

Outlook

Residential activities including new developments are expected

to be concentrated in the suburban and peripheral areas of

the city due to the obvious reason like scarcity of land parcels

in the central areas. On account of fewer new job prospects

and curtailed spending both by individuals and corporate,

demand for residential properties will continue to be passive.

This situation is likely to force select residential developers to

follow distress sale route.

Regulatory measures such as reduction in home loan rates

both by the government owned financial institutions and

private banks etc. are expected to help in reviving the demand.

Recent proposal by the Government of Andhra Pradesh to

exempt the stamp duty (5%) and applicability of only

registration fee (2.5%) on new apartments up to 1,200 sq.ft.

starting from January 2009 till December 2010 is a positive

move in favour of end users.

As a last resort to revive demand, selling at minimal margin is

expected to spread amongst certain group of developers,

although this initiative has already been adopted by few. In this

process, buyers looking for budget and mid-segment

residential properties can achieve savings on the first offer

itself.




points not matching expectations. With the apparent softening

of demand, mall supply witnessed a set back as two planned

mall projects, one each in Himayathnagar and Banjara Hills

Road No.1 earlier scheduled to be operational by end of

2008, were deferred to 2009. The latter witnessed pre-lease

commitments from leading international brands, mostly in the

apparel segment.

Mall vacancy stagnated at approximately 5% by end of 2008 as

compared to nearly 18% during 1Q of 2008. Space availability

in Ashoka Metropolitan Mall which was subsequently leased

to various retailers led to the overall high vacancy during in

1Q of 08.


The city's retail market witnessed preference for main streets

due to better visibility for the brands coupled with minimal

retail space in malls. Prominent main streets such as Jubilee

Hills Road No. 36, Banjara Hills Road No. 12, Begumpet and

Somajiguda witnessed organized retail activities primarily from

apparel, lifestyle retail brands and consumer durables segment.

Main street rentals dipped across most micro markets

between 12-29% over the previous year. However, during the

same timeframe Raj Bhavan Road, Somajiguda and Jubilee Hills

saw a slower rate of depreciation with a correction of 3-6%

due to non-availability of properties.

Luxury car makers like BMW, Audi, Volkswagen and Volvo etc.

established their presence along main streets of Raj Bhavan

Road, Banjara Hills and Jubilee Hills, while entry of

international luxury brands was very minimal. Hypermarket

format stores such as Reliance Mart and SPAR getting

operational during the second half of the year established

consumer preference for such stores in Hyderabad.

Outlook

Hyderabad is set to witness planned mall development of

approximately 1.2 million sq.ft. in 2009 spread across three

malls in Banjara Hills Road No.1, Himayathnagar and

Madhapur/ Hitec City.

Rentals across select malls and main streets are expected to

witness further correction between 5 to 10% by first half of

2009 given their susceptibility to demand slowdown and

additional retail space infusion. Various mall developers who

anticipated project completion in the next two years may face

execution risk due to the liquidity crunch leading to further

delay in their schedules. Revenue sharing between mall

developers and tenants, although not yet a prominent trend in

Hyderabad, may see the light of day in 2009. Existing tenants in

main streets are in a better position to re-negotiate rentals

with landlords as demand remains low.

Unlike all the existing main streets where new supply is scarce,

Jubilee Hills Road No. 36 looks promising as this location is

expected to be supply heavy. This is evident from the

numerous standalone properties which are under various

stages of completion along the 4 kilometres stretch starting

from Jubilee Hills check post till Kavuri Hills. Retailers dealing

with apparel, electronics and consumer goods are committed

to the standalone stores. Other main streets are likely to

witness moderate activities as new supply is likely to be very

limited.

Note : �The rental values indicated are base rents and do not include interest cost of




36

Renta

l V

alu

es (

inr/

sq.ft./m

onth

)


0

50

100

150

200

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08

250

250

250

250

250

M.G Road S.P Road/ Begumpet Raj Bhavan Road/ SomajigudaBanjara Hills Abids HimayathnagarPunjagutta Ameerpet Jubilee HillsKukatpally A S Rao Nagar Madhapur


INR

/Sq.ft./M

onth


0

50

100

150

200

250

Q1-07

Himayathnagar Banjara Hills, Rd No.1NTR Gardens

Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08


COMMERCIAL

The total office space supply in Kolkata was recorded at 1.97

million sq.ft in 2008, which was lower by 10% than the supply

received in 2007 of approximately 2.2 million sq.ft. Almost

89% of the supply in 2008 was concentrated in the peripheral

locations, with Salt Lake accounting for 48%, followed by

Rajarhat at 41%. Dalhousie and Park Circus Connector

witnessed no new supply in 2008 while CBD registered

around 10 % of the total supply.

Of the entire supply delivered in the year , IT SEZ accounted

for 40% of the supply at approximately 790,000 sq.ft which

was entirely concentrated in Rajarhat. Salt Lake accounted for

the entire IT/ITeS (non SEZ) supply at approximately 606,000

sq.ft. During 1Q 2008, the supply was concentrated entirely in

Rajarhat while Salt Lake and CBD dominated the supply

scenario in 2Q 2008. In 3Q 2008, all major micro markets

baring Dalhousie and Park Circus Connector witnessed

infusion of fresh supply. The peripheral locations of Salt Lake

and Rajarhat accounted for the entire supply in 4Q 2008. The

Annual Supply - 2008

IT Non-IT IT-SEZ

40%

31%

29%


IT Non-IT

KOLKATA

Liluah

Shalkiya

Beniatola

Paikpara

Ultadanga

South

Dum Dum

Rajarhat

Salt Lake

Kankurgachi

Beleghata

Narkeldanga

Kulia

Tangra

Bow

Bazaar

Gobra

Topsia

TiljalaBallygunge

Bhawanipur

Alipore

Kalighat

TollygungeBehala

Kazipara

Royal Calcutta

Golf Club

Paschim

DarishaPurba

Darisha

Bijoygarh

Naktala

Santoshpur

Garfa Haltu

Kasba

Baishnabghata

Patuli Township

Dhapa

Mominpur

Taratala

Nature ParkRajarhat

Gopalpur

Garden

Reach

Hooghly

River

Shalimar

Shibpur

Mail

Panchghara

Park Street

KOLKATA MARKET OUTLOOK

37

Commercial

Micro Market



Retail

Micro Market



Residential

Micro Market






Automotive Others Telecommunication

IT/ITeS BFSI

13%4%

61%4%

18%

city was witness to significant supply in the commercial space

segment in 2008. Salt Lake registered the highest commercial

space supply at 343,000 sq.ft primarily on account of

substantial demand from corporates for high quality office

space in the location while CBD followed with supply at

200,000 sq.ft in the segment. Supply fell short by over 50%

than the projected supply of 4.2 million sq.ft in the beginning

of 2008. This was primarily due to deferment of a number of

significant projects in wake of global economic crisis

contracting the demand scenario in the city.

The city recorded total demand of approximately 1.8 million

sq.ft during 2008 primarily driven by the IT/ITeS segment

comprising of pre-commitments of approximately 1.09 million

sq.ft. concentrated entirely in the peripheral locations.

Rajarhat witnessed almost 84% of the pre-commitments

primarily due to higher quality of supply and considerably

lower rentals in comparison to other micro markets. The city

was witness to about 63% decline in absorption at 780,000

sq.ft in 2008 as against 2007; attributable to the recessionary

conditions of the economy as major corporate houses shelved

their expansion plans during the last two quarters of the year.

Absorptions included 63,000 sq.ft of pre-commitment of

earlier years.

IT/ITeS sector accounted for 62% of the total absorptions in

2008. The first and last quarter of 2008 witnessed maximum

absorptions in the IT/ITeS segment. During 1Q 2008, almost

51% of the new supply delivered was absorbed; with Rajarhat

dominating the absorptions. In the second and third quarter of

2008, entire absorption was in the commercial office space

segment. In 2008, Salt Lake saw maximum absorption in the

commercial office space. Prime CBD locations and Dalhousie

witnessed almost 67% of the absorptions during 2Q 2008. A

key feature was that most of the absorption was on the

existing vacant space available.

The overall vacancy levels across the city increased

considerably from 6% in the beginning of the year to 11% by

the end of 2008. Only 24% of the new supply delivered was

absorbed in 2008. Peripheral locations recorded the highest

vacancy levels escalating from 8% at the beginning of the year

to 18% by the end of 2008. This was primarily on account of

infusion of fresh supply in the micro markets and the new

supply remaining unabsorbed. Vacancy rates in CBD however,

remained below 4% due to limited new supply in the micro

market.

Pursuant to the general slowdown in the economy, Kolkata

witnessed significant correction in the rental values across

almost all micro-markets by the end of 2008. During 1Q 2008,

only Park Street and Rajarhat witnessed an increase in the

rentals. Rentals stabilized in 2Q 2008 baring a marginal rise in

CBD locations and Dalhousie due to the buoyancy in demand

for corporate office space in the region. The peripheral

locations witnessed a correction in 3Q 2008 on account of

increasing vacancy while CBD, along with Rash Behari

Connector and Dalhousie continued their northward trend

attributable to the demand from the corporates. However, by

4Q 2008 CBD and Dalhousie registered a double digit decline

while Park Circus Connector and Rash Behari Connector

registered decline in the range of 4-5% , primarily due to the

limited new supply in the offing. Rajarhat and Salt Lake

continued with their trend of rental correction attributable to

the rising levels of vacancy.


38

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

0

20

40

60

80

100


120

140

Park Street / Camac Street Dalhousie Square2

Salt Lake

Park Circus (Topsia) Rash Behari Connector (Ruby)2

Rajarhat

1Q

- 0

3

2Q

- 0

3

3Q

- 0

3

4Q

- 0

3

1Q

- 0

4

2Q

- 0

4

3Q

- 0

4

4Q

- 0

4

1Q

- 0

5

2Q

- 0

5

3Q

- 0

5

4Q

- 0

5

1Q

- 0

6

2Q

- 0

6

3Q

- 0

6

4Q

- 0

6

1Q

- 0

7

2Q

- 0

7

3Q

- 0

7

4Q

- 0

7

1Q

- 0

8

2Q

- 0

8

3Q

- 0

8

4Q

- 0

8





Are

a (

mill

ion s

q.ft.)

Va

cancy R

ate

(%

)


0.00

0.50

1.00

1.50

2.00

2.50

2003

0

2

4

6

8

10

2004 2005 2006 2007 2008

12

Renta

l V

alu

es (

inr/

sq.ft./m

onth

)

Gro

wth

Rate

(%

)

0

20

40

60

80

100

Park

Str

eet/

Ca

ma

c S

tre

et -15

-10

-5

0

5

10

15


120 20

Da

lho

usie

Sq

ua

re

Pa

rk C

ircu

sC

on

ne

cto

r(T

op

sia

)

Ra

sh

Be

ha

riC

on

ne

cto

r(R

ub

y)

2R

aja

rha

t 2S

alt L

ake



2 Rentals are for warm shell facilities (shell and core facility, power, high side air

conditioning and 100% power backup)

Outlook

The projected office space supply for 2009 is expected to be

approximately 2.5 million sq.ft., a substantial part of which is

deferred supply from 2008. Most of the upcoming supply will

be concentrated in the peripheral locations of Salt Lake and

Rajarhat. Of the total expected supply, approximately 1 million

sq. ft. will be in SEZs. Deferred supply of 2008 will constitute

majority of the supply in 2009. Salt Lake and Rajarhat are

expected to witness higher vacancy levels as well as further

correction in the rentals as few major projects are lined up

for delivery by the second quarter of 2009. E.M. Bypass and

Park Circus Connector too may witness a fall in rental values

as couple of mixed-use developments are anticipated to infuse

new supply in these micro-markets. Kolkata market is likely to

see a mixed trend in demand comprising of both IT/ITeS and

commercial office space. The city is likely to witness pre-

commitments of approximately 1 million sq.ft turning to

absorptions in 2009. With the prevalent economic conditions,

new requirements from IT/ITeS sector, which has been the key

demand driver, is expected to be slow and thus impacting the

demand for new office space supply. But with major IT/ITeS

pre-commitments of 2008 expected to get absorbed, the

share of the IT/ITeS segment will still surpass demand for

commercial office space in 2009.

Rental Cycle

Market

Recession

Market

Bottoming

Market

Recovery

Market

Slowing

RentalTrough

StrengtheningMarket

RentalPeak

WeakeningMarket

4Q 2008

4Q 2009(F)

RESIDENTIAL

Kolkata residential market exhibited a largely stable position

during 2008. The market was least prone to any major

fluctuations and was characterised by thoughtful and cautious

approach. Investors showed an inclination to exit the

investments. With the global slump, funding from financial

institutions was constricted to a certain extent leading to

lesser demand for residential properties. An anticipation of

further correction in the prices too has restrained demand

from end users and investors alike both in the mid-range and

high end segment.

Kolkata, over the last few years has seen an increased interest

from corporate to set up offices herein bringing in a flock of

senior and middle management to the city. It has further

accentuated the emergence of newer locations like EM Bypass

and Rajarhat and outer peripheries of Kolkata district etc.

which have come up as new residential hubs in addition to

south Kolkata. However the infrastructural complexities have

slowed down the pace as well as the attractiveness of the

projects in the new locations especially in Rajarhat to some

extent.

Newer locations were characterised by substantial number of

projects in the mid range segment. Certain micro markets

mainly in the prime residential pockets also observed re-

development of properties. However, the city at large,

witnessed limited number of projects being delivered in 2008. A few mega-townships projects were observed being shelved

or deferred while certain others saw projects size being

trimmed down in wake of the prevalent conditions.

Capital Values

Capital values in Kolkata witnessed minor changes during the

year remaining largely stable across most micro-market in

both the segments. Kolkata market exhibited least panic sales

in wake of the economic slowdown. Towards the end of 2008,

a slight decline was observed in the locations of Ballygunge,

Alipore Road, Rajarhat and south Kolkata markets. Mid-range

housing characterised by end-users preferred to hold on to

their assets thus reducing any major fluctuations barring a

minor decline in south Kolkata. The high end segment

recorded a minor decline on account of few investors seeking

disposal of their investments.


39

1 Average high end values are for properties above 3,000 sq.ft.

2 Average mid end values are for properties below 2,000 sq.ft.


Capital V

alu

es (

INR

/sq.ft.)

An

nu

al G

row

th R

ate

(%

)


0

2,000

4,000

6,000

8,000

10,000

12,000

-10

-5

0

5

10

15

20

25

So

uth

ern

A

ve

nu

e,

Do

ve

r L

an

e

30

Ba

llyg

un

ge

Q

ue

en

Pa

rk,

Ra

iny P

ark

Gu

rusd

ay R

d

EM

Byp

ass

Alip

re P

ark

Rd

,A

sh

oka

Rd

,B

elv

ed

ere

Rd

La

nsd

ow

ne

,P

ark

Str

ee

t

Sa

lt L

ake

Ra

jarh

at




Ne

w A

lipo

re,

Go

lf G

ree

n,

To

llyg

un

j0

1,000

2,000

3,000

4,000

0

2

4

6

8

10

12


Capital V

alu

es (

INR

/sq.ft.)

An

nu

al G

row

th R

ate

(%

)

5,000

6,000

14

16

18

Hin

du

sta

n

Pa

rk

EM

Byp

ass

Ra

jarh

at

Ka

ku

rga

ch

i,L

ake

To

wn

,Je

sso

re R

d,

Jlta

da

ng

a



Renta

l V

alu

es (

INR

/sq.ft./m

onth

)


0

50

100

150

200

250

300

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08

Salt Lake Elgin Road

350

400

South Kolkata Rajarhat

450

500

550

Are

a (

mill

ion s

q.ft.)

Year

Mall Supply Trend

0.00

0.50

1.00

1.50

2.00

2007 2008 2009 (F) 2010 (F)

2.50

3.00

3.50

Rental Values

Rentals values in Kolkata witnessed mild fluctuations during

the first three quarters of 2008 across all micro-markets in

the high-end segment. The mid range segment remained stable

due to buoyant demand and also due to the fact that this

segment is price sensitive and could have been negatively

impacted incase of any increase in rental values. Thus in a

deliberate attempt to ensure healthy demand, landlords

largely maintained their rental values at the existing rates.

However, high end segment witnessed major drop ranging

from 4- 22% in rental values over a single quarter during 4Q

2008. Least change was observed in the south east Kolkata

(EM Bypass) across all quarters and segments during the year.

This was primarily due to its proximity to the major business

districts and easy connectivity in addition to high-quality

projects.

North east Kolkata particularly Rajarhat was expected to

change the dynamics of residential market in Kolkata but it

failed to make any significant impact on account of

infrastructural problems posing impediments with a number

of projects both in the construction stage and those delivered

facing serious hurdles. It has led to a decline in the rentals and

is likely to see further decline probably in the end-user driven

mid range segment. Ballygunge, Gurusaday Road, Alipore Road,

Ashoka Road and Belvedere Road which have been quoting

highest rentals on account of their positioning as traditional

RETAIL

The retail sector in Kolkata which demonstrated signs of

revival in early 2008 with two major malls becoming

operational witnessed no fresh mall supply in the second half

of the year. Few major mall projects that were earlier

expected to become operational during the year have now


40

1 Average high end values are for properties above 3,000 sq.ft.

2 Average mid end values are for properties below 2,000 sq.ft.

residential pockets are unlikely to witness any major

fluctuations as opposed to the trend observed during the

fourth quarter of the year.

Outlook

The rental and capital values in prime residential locations are

likely to remain stable over next few months largely due to

continued demand at the current values. With overall market

sentiments trickling into the Kolkata market, the propensity of

the lessee to lease at higher values is limited thereby bringing

in stabilisation in values. However, emerging locations and new

projects may see some corrections in the prices owing to the

present economic slowdown lessening the pace and quantum

of transaction activities in the market. The market is unlikely

to witness new project launches until it regains its lost

confidence; new projects even if launched are likely to be

more oriented towards affordable housing.





Re

nta

l V

alu

es (

INR

/mo

nth

)

An

nu

al G

row

th R

ate

(%

)


0

5,000

10,000

15,000

20,000

25,000

30,000

0

20

40

60

80

100

120

140

Ne

w A

lipo

re,

Go

lf G

ree

n,

To

llyg

un

j

35,000

40,000

Hin

du

sta

n

Pa

rk

EM

Byp

ass

Ra

jarh

at

Ka

ku

rga

ch

i,L

ake

To

wn

,Je

sso

re R

d,

Ulta

da

ng

a


0

20,000

40,000

60,000

80,000

-15

-10

-5

0

5

10

15


Re

nta

l V

alu

es (

INR

/mo

nth

)

An

nu

al G

row

th R

ate

(%

)

100,000

120,000 20

25140,000

So

uth

ern

A

ve

nu

e,

Do

ve

r L

an

e

Ba

llyg

un

ge

Q

ue

en

Pa

rk,

Ra

iny P

ark

Gu

rusd

ay R

d

EM

Byp

ass

Alip

re P

ark

Rd

,A

sh

oka

Rd

,B

elv

ed

ere

Rd

La

nsd

ow

ne

,P

ark

Str

ee

t

Sa

lt L

ake

Ra

jarh

at


Renta

l V

alu

es (

INR

/sq.ft./m

onth

)


0

100

200

300

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08

Camac Street Park StreetTheatre Road Elgin Road

50

150

250

been deferred and are slated for 2009 launch. In Kolkata

market, the retailers have shown a preference for being

present across the city's various malls. Retail rental values

across the city's main streets stabilized during the first three

quarters of 2008; however by the end of the year some

corrections were observed in Park Street and Theatre Road.

Mall Development

The city witnessed about 1.37 million sq.ft of new mall supply

in 2008 which was entirely accounted for by two malls -

South City Mall in south Kolkata and Mani Square in EM

Bypass that started operations in the first half of 2008. The

South City Mall measuring approximately 1 million sq.ft

became operational in the first quarter of the year and is the

largest mall in Kolkata with retail giants such as Shoppers

Stop, Pantaloons and Starmark as anchors. The mall houses

other eminent brands as Lladro, Van Heusen, Next, Swarovski

and Hidesign, etc. among others.

Mall supply in Kolkata was projected at 3.9 million sq.ft at the

beginning of 2008 but fell short by over 64%. By the third

quarter of 2008, pursuant to the general economic conditions

a number of projects were either shelved or deferred to later

years. Over 70% of the deferred mall projects were in the

micro-market of Rajarhat in anticipation of the potential

catchments from a number of ongoing residential and

commercial projects. But the slow pace of development in

addition to the infrastructural impediments curtailed the

attractiveness of Rajarhat as the next major retail destination

in Kolkata.

Few big retailers who had earlier committed substantial retail

spaces in their upcoming mall projects exited their

commitments in wake of the present conditions and

deferment of the projects. The city also witnessed few mall

projects across significant locations getting converted into

mixed use developments with relatively less space assigned

for retail developments attributable to the current economic

conditions.

Mall rentals in south Kolkata and Rajarhat during the first

three quarters of 2008 maintained a northward trend. The

presence of major retail brands and high occupancy was the

prime determinant in the escalation of the rentals in South

Kolkata; while Rajarhat gained on account of it's positioning as

the next retail destination and comparatively lower rentals.

Salt Lake and Elgin Road saw stabilisation in the rental values

primarily on account of unavailability of vacant space.

However by 4Q 2008, rental values across major micro

markets barring Salt Lake registered a decline. The mall

vacancy levels in the city stood at 5.59% at the end of 2008

with relatively reduced leasing activities during the fourth

quarter. The market was also witness to retailers

renegotiating the rental values to cover on the rising

operational costs.


During 2008, the prominent main streets of Kolkata - Park

Street, Camac Street, Elgin Road and Theatre Road witnessed

restrained activities as compared to the malls. Retail rentals

across the city's main streets remained stable over the first

three quarters of 2008. By fourth quarter of 2008, a slight




41

decline was registered in Park Street and Theatre Road with a

few prominent properties remaining vacant in these locations

largely due to the higher asking rates.

The city's high streets lacked new space options as there was

no re-development or new construction activity. Large format

retailers showed preference for traditional markets like

Gariahat but limited space and lack of quality infrastructure

curtailed further activities in the micro-market. New locations

like New Alipore, south Kolkata and Kankurgachi saw some

activities due to factors like affordable real estate prices and

established catchments. The year also saw some leasing activity

off high streets with brands like Levi's, Reebok, Reliance

Digital, etc opening their outlets in such locations.

Outlook

Kolkata is likely to witness further softening in rental values

across both malls and main streets. Mall supply is expected to

considerably come down from the earlier projections of 3.3

million sq.ft in 2009 as many developers are now converting

their planned retail spaces to office spaces or have delayed the

project. Most of the new mall supply in 2009 will comprise of

deferred projects of 2008. Retail segments like value retail and

discount format, food and beverage retail is expected to see

more activity. Locations like Kankurgachi with lower rental

values off the main streets with established catchments are

expected to emerge as newer destinations.


Vatwa

Isanpur

Ghodasar

CTM

AmraiwadiKankarai

Mani Nagar

Paldi

Fatehpur

Vasana

Narol

Sabarmati

River

Vejalpur

Saraspura

Haripura

Hirawadi

Drive-in Rd

Judges BungalowUniversity

AreaVastrapur

Satellite Rd

Shahibagh

RanipNirnay

Nagar

Chandlodia

Ghatlodia

Acher

Hansol

Chandkheda

Gota

AHMEDABAD

ONGC

Ram Nagar

Naranpura

Sola

Jodhpur

Village

Vasana

JuhapuraMakarba

S.G

Hig

hway

Sarkhej

Lambha

Kalapi

Nagar

Megani Nagar

Kuber

Nagar

Thakkarbapa

Nagar

Odhav

Nicol

Nava

Naroda

GIDC

Naroda

Thaltej

Sardar

Patel

Ring Rd

Sanand Hwy

NH 59

NH 8SH 4

Ashram Rd

Sardar

Patel

Ring Rd

Sardar

Patel

Ring Rd

Ahmedabad Vadodara Express Hwy

SH 3

AmraiwadiKankaria Lake

Mani Nagar

Chandola

Lake

CTM

Laxmi Narayan

Society

Rakhial Rd

Prahlad

Nagar

C.G

. Rd

Law Garden

Navrangpura

COMMERCIAL

The total demand for commercial office space in Ahmedabad

was recorded at 349,000 sq. ft. in 2008. With marginal

pre commitments of 32,000 sq. ft., absorption (317,000 sq. ft.)

accounted for approximately 91% of the total demand in

2008. The micro market of Sarkhej Gandhinagar Highway

(S.G Road) witnessed the highest demand of the year at

186,900 sq. ft. followed by C.G Road (110,764 sq. ft.). Owing

to the marginal supply and the current high rentals Ashram

Road witnessed the least demand in 2008. Sector like Telecom

and Communication (27%) and BFSI (26%) were the main

demand drivers of commercial space in 2008. Pharmaceuticals

recorded a demand of about 16% while sectors like IT/ITeS

and infrastructure/ construction witnessed limited demand for

corporate office space in 2008.

In 2008 Ahmedabad witnessed fresh office supply of

about 590,000 sq. ft. catering mainly to the non-IT sector.

As compared to 2007, Ahmedabad witnessed a drop of 16%

in total supply in 2008 due to delays in completion of

certain on going projects. Supply was also sporadic in 2008

and was mainly concentrated in 2Q 2008 (51%) and 4Q 2008

(45%). Owing to the availability of land for development,

suburban micro markets of Satellite Road ( 58%) and Sarkhej

Gandhinagar Highway (11%) accounted for about 69 % of the

total supply in 2008, while C.G Road made up for

approximately 23% of the of the total supply in 2008.

Traditionally a strong office space market, Ashram Road did

not witness any significant new supply, due to limited

opportunities for new commercial space development.


BFSI Infrastructure / Construction Pharmaceuticals

Telecommunication Others

16%

17%

26%14%

27%

AHMEDABAD MARKET OUTLOOK

42

Commercial

Micro Market



Retail

Micro Market



Residential

Micro Market





Owing to the significantly reduced supply, Ahmedabad

witnessed an average vacancy of approximately 3-4% in 2008

which was marginally lower than the vacancy levels of 5-7%

observed in 2007. With a few companies vacating premises

and reduced leasing activity happening across Ashram Road,

the micro market witnessed the highest vacancy of about 6%.

Sarkhej Gandhinagar Highway and Satellite Road witnessed

vacancy of approximately 4% followed by C.G Road which

recorded the lowest vacancy of about 2%.

Ahmedabad witnessed consistent growth in rental values

across most micro markets for first three quarters of 2008

and reached a record high in 3Q 2008. However with

sufficient supply meeting the current demand, rental values

stabilized across all micro markets in 4Q 2008. With majority

of new developments in micro markets of Sarkhej

Gandhinagar Highway and Satellite Road offering larger floor

plates and other amenities such as ample parking space which

was not seen in the earlier developments, these micro

markets witnessed highest year-on-year appreciation of 27%

followed by C.G Road witnessing a 23% increase in rental

values over 2007.

Outlook

In the wake of current economic slowdown which has

significantly reduced demand for office spaces Ahmedabad is

likely to witness delays in completion of certain ongoing

projects and even postponement in launch of a few new

projects thus curtailing the entry of new supply in the first few

months of 2009. Owing to the limited supply in the next 3-6

months, the rental and capital values across most micro

markets are expected to remain stable over short to medium

term.

Sarkhej Gandhinagar Highway is expected to be an active

commercial corridor of the city due to its accessibility to

several planned SEZs, Gujarat International Finance Tech City

(GIFT) and Industrial Parks such as Sanand. Sarkhej

Gandhinagar Highway along with Satellite Road will be

witnessing development of commercial buildings with no retail

component which is expected to command a premium over

other mixed use developments.

Rental Cycle

Market

Recession

Market

Bottoming

Market

Recovery

Market

Slowing

RentalTrough

StrengtheningMarket

RentalPeak

WeakeningMarket

4Q 2009 (F)

4Q 2008

RESIDENTIAL

Historically the Ahmedabad residential sector has been

dominated by independent row houses and villas. However the

trend is now changing with a number of mid and high range

apartments being planned and developed in micro markets of

western Ahmedabad such as Satellite Road, Prahlad Nagar,

Judges Bungalow and Vastrapur. Due to limited availability of

land in central locations such as C.G Road and Ashram Road,

supply was mainly concentrated in suburban micro markets

such as Satellite Road and Prahlad Nagar. In 2008, Ahmedabad

witnessed subdued demand owing to a wait and watch policy

adopted by end users.

Locations such as Gujarat High Court, Thaltej, Gota, Ghatlodia

and Sola have emerged as new residential destinations catering

to mid and high segment. These locations are expected to

witness an increase in residential developments in 2009 due to

their proximity to Sarkhej Gandhinagar Highway, Sardar Patel

Ring Road, proposed SEZs, upcoming IT Parks and Gujarat

International Finance Tech (GIFT) City along with other

amenities like educational institutes.

Capital Values

In 2008 Ahmedabad residential market witnessed softening of

capital values for both high and mid end properties due to a

slowdown in demand which was primarily driven by end users.


43




Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

0

20

40

60

80

100


Sarkhej-Gandhinagar Highway

1Q

- 0

3

2Q

- 0

3

3Q

- 0

3

4Q

- 0

3

1Q

- 0

4

2Q

- 0

4

3Q

- 0

4

4Q

- 0

4

1Q

- 0

5

2Q

- 0

5

3Q

- 0

5

4Q

- 0

5

1Q

- 0

6

2Q

- 0

6

3Q

- 0

6

4Q

- 0

6

1Q

- 0

7

2Q

- 0

7

3Q

- 0

7

4Q

- 0

7

1Q

- 0

8

2Q

- 0

8

3Q

- 0

8

4Q

- 0

8

C. G. Road

Ashram Road Satellite Road

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

Gro

wth

Rate

(%

)

0

5

10

15

20

25

C.G

Ro

ad

0

5

10

15

20

25

30


30

35

40


35

Ash

ram

R

oa

d

Sa

rkh

ej

Ga

nd

hin

ag

ar

Hig

hw

ay

Sa

telli

teR

oa

d


Investor activity which was largely confined in western

Ahmedabad also subsided in the second half of 2008 due to

curtailed availability of funds. Navrangpura and Vastrapur

witnessed highest drop in capital values across high end

residential properties due to increasing preference of end

users towards new residential developments in Prahlad Nagar

and Satellite Road. However a conservative approach and

postponement of purchase decisions by end users has forced

developers to offer discounts and freebees.

Rental Values

Since capital values appreciated by about 2-3 times over the

last few years and investors looked to maintain their returns,

an increase in rental values across all micro markets of

Ahmedabad was witnessed in 2008. Decrease in affordability

of end users due to significant high interest rates has also led

to increase in demand for rental accommodation. As

compared to eastern Ahmedabad, micro markets in western

Ahmedabad commands higher rental values due to their

proximity to offices and improved social and physical

infrastructure. Proximity to commercial and retail hubs such

as Sarkhej Gandhinagar Highway and Satellite Road led micro

markets of Satellite Road, Judges Bungalow, Vastrapur and

Prahlad Nagar to witness highest rental appreciation across

high end residential properties.

RETAIL

Organized retail in Ahmedabad is primarily concentrated in

western parts of the city in locations such as C.G Road,

Sarkhej Gandhinagar Highway, Satellite Road and Drive-in

Road. In 2008 main streets witnessed higher leasing activity as

compared to malls with C.G Road being the most active and

sought after main street in Ahmedabad. An overall slowdown

in consumer spend has resulted in a drop in sales which has

forced many retailers in the city to either reconsider their

expansion plans or reduce new or previously committed space

Are

a (

mill

ion s

q.ft.)

Mall Supply Trend

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2006 2007 2008 2009 (F) 2010 (F)

Year

Outlook

With developers postponing their projects as a result of

limited availability of funds, Ahmedabad is expected to witness

marginal supply in short to medium term leading to

stabilization in capital values in next 3-6 months. However

rental values are also expected to remain stable in next 3-6

months. Upcoming locations of Naroda, Nikol and Gota are

likely to witness spurt in demand due to their proximity to

infrastructural developments such as Bus Rapid Transit System

(BRTS) and Mass Rapid Transit System (MRTS).

A few integrated townships by local and national developers

have been proposed in peripheral locations of Ahmedabad

such as Sanathal, Dantali and Sardar Patel Ring Road which are

expected to add more supply of mid and high end properties

in Ahmedabad in near future.

Renta

l V

alu

es )

INR

/sq.ft./m

onth

)


0

100

200

300

Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08

Vastrapur SG Highway

Drive-in Road Kankaria Lake


44

Na

ga

r

Sa

telli

te

Ro

ad

Na

vra

ng

pu

ra

Va

str

ap

ur

Ju

dg

es

Bu

ng

alo

w

Ma

ni

Na

ga

r


0

500

1,000

1,500

2,000

2,500

3,000

-16

-14

-12

-10

-8

-6

-4

-2

0

Annual G

row

th R

ate

(%

)

Capital V

alu

es (

INR

/sq.ft.)



0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

0

5

10

15

20

25

30

Na

ga

r

Sa

telli

te

Ro

ad

Na

vra

ng

pu

ra

Va

str

ap

ur

Ju

dg

es

Bu

ng

alo

w

Ma

ni

Na

ga

r

Annual G

row

th R

ate

(%

)

Capital V

alu

es (

INR

/month

)







take up. In the last 4 quarters, rental values have gone down

by approximately 6-26% across main streets and about 16-

30% across malls.

Mall Development

Ahmedabad saw the commencement of two malls in 2008

which were mostly concentrated in micro markets of Sarkhej

Gandhinagar Highway (350,000 sq.ft.) and Satellite Road

(220,000 sq.ft.) adding 570,000 sq. ft. of mall space, taking the

total mall stock of the city to 2.63 million sq.ft. However, as

compared to 2007, Ahmedabad witnessed significantly

reduced mall supply in 2008. Two other malls with a total

retail space of approximately 650,000 sq. ft. are expected to

get operational in first half of 2009. Sarkhej Gandhinagar

Highway, with about 77% of the total upcoming mall

development in 2009, is expected to remain an active retail

corridor of the city. Ahmedabad is expected to witness small

and mid format mall supply in 2009.

After witnessing stability in the first half, Ahmedabad

observed a drop in mall rental values across all micro markets

in second half of 2008. Lower than expected revenues,

disproportionately higher occupancy cost and poor

conversions forced retailers/brands re - look at their portfolio

leading to many retailers canceling or downsizing their space

requirements and thus adding to higher vacancies of about

15-40% in the few existing malls in the city. Micro market of

Sarkhej Gandhinagar Highway witnessed the highest vacancy

of about 40% followed by Kankaria Lake (35%) and Drive-in

Road and Satellite Road (15%). Owing to limited leasing

activity and high vacancy of about 35% in the operational mall,

micro market of Kankaria Lake witnessed highest year-on-

year decline of about 30% followed by Sarkhej Gandhinagar

Highway observing a drop of about 21% in rental values over

a single year.


C.G Road continues to be the most active and sought after

main streets in Ahmedabad and was preferred by retailers for



exclusive brand outlets over other main street locations and

malls. Reduced demand for retail space due to cautious

expansion strategy by the retailers impacted main street rental

values in Ahmedabad with all micro markets registering a

decline in rental values in 2008. Satellite Road witnessed the

highest year-on-year decline of about 26% followed by Law

garden (19%). Even though C.G Road remained an active main

street location in the city, it witnessed softening of rental

values by approximately 14%. Sarkhej Gandhinagar highway

witnessed lowest year-on-year decline of 6% in rental values

which could be attributed to city's development pattern

towards western region, availability of large floor plates and

proximity to upcoming commercial and residential

developments.

Outlook

With retailers postponing their expansion plans in wake of

consolidating and correcting their portfolio, Ahmedabad is

expected to witness a slowdown in leasing activity in next 3-6

months. The upcoming mall supply coupled with changes and

realignment in retailers' outlook are likely to put further

pressure on mall rental values leading to further decline of

rental values in short to medium term. However C.G Road

and Sarkhej Gandhinagar Highway are expected to witness

some leasing activity in short to mid term.


CG Road Law Garden

Satellite Road SG Highway

Renta

l V

alu

es (

INR

/sq.ft./m

onth

)

0

50

100

150

200

Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08


45


What the first stimulus package spelt for the RE sector

�

�Restructuring of loans for commercial RE projects

�Excise duty cuts on construction costs like steel and cement

Priority sector status for low-value loans

END NOTES

46

According to a Cushman & Wakefield report on the economy

and its impact on real estate, the good news for Asia is that

growth is still expected to do better than in previous

downturns experienced by the region. The big Asian

economies of China and India are forecast to grow at 8.5%

and 6.3% respectively, compared to sub-zero growth in the

USA and EU. In addition, domestic demand from the two and

a half billion consumers of Asia's two strongest emerging

economies will help support intra-regional Asian trade even in

such dismal times.

Governments and international institutions have put in place

mechanisms to try to prevent the transmission of the crisis

from the advanced economies into Asia. Though it is too soon

yet to indicate its success, the great advantage Asia has is that

its governments have sufficient reserves and surpluses and are

better placed to survive the turmoil than emerging markets in

other regions.

As investment markets become more liquid, Asia will be well

placed to benefit from that investment and will continue to be

a great place to hold real estate assets. At present even

though real estate deals are somewhat slow, as markets start

to ease, economic conditions combined with government

reserves available for stimulus packages should continue to

make Asia attractive for investments.

Though not on the massive scale of the Chinese government,

but the Indian government too introduced several fiscal and

stimulus packages. Since October 2008 the Reserve Bank of

India (RBI) had been taking several steps to lower interest

rates in a bid to revive market conditions. But with banks

treating the real estate sector with extreme caution, a

plunging consumer confidence index and crashing valuations,

the resources of both developers and funds are limited,

leading to frozen projects and staggered/aborted expansion

plans. The hardest hit, are the small and medium-ticket

players.

As a stimulus package for the sector (and to help the rollover

of existing debt), industry bodies such as the National Real

Estate Development Council (NAREDCO) and the

Confederation of Real Estate Developers' Associations of

India (CREDAI) had appealed to the Government to ease FDI

and ECB norms as well as to formulate fresh policies for

rescheduling term/ construction loans.

As part of the first stimulus package announced by the

Government in December 2008, the RE sector was allowed

special treatment by banks, while the housing sector was

accorded priority sector status in a move to trigger demand.

An additional INR 20,000 crore was pumped into the current

fiscal as incentives for sectors like infrastructure, housing,

textiles and exports.

Despite positive intentions, these measures failed to create any

immediate impact on the sector, save lowered construction

costs. For starters, a more pro-active role was expected from

banks as far as instantaneous sanctioning of affordable housing

loans was concerned.

To strengthen the credit/fiscal front of the economy the

Centre is expected to announce its second stimulus package in

early January 2009. At the end of the day, till these measures

get translated from the drawing board on to the marketplace,

it is really too early to assess the impact of such stimulus

packages on the realty sector in the short to medium term.

The slowdown in the Indian economy along with restrained

availability of funds and reducing demand across all

sectors (commercial, retail and residential) have taken a

toll on confidence levels of developers, financial institutions

and end users alike. Stakeholders' confidence nosedived in

2H 2008, particularly for major cities like Mumbai and NCR,

which witnessed subdued demand for commercial office

space during the period, coupled with large upcoming supply

and increasing vacancies. The drop in confidence level was

comparatively lower in cities like Hyderabad, Pune and

Bangalore. This can be attributed to developers anticipating

an upswing in demand, particularly for residential space

over the next six months as a fall out of lowering home loan

interest rates.

India Realty Confidence Index 2008

0 1020

30

40

50

60

70

80

90

100-100

-90

-80

-70

-60

-50

-40

-30

-20-10

Real Estate Confidence Index - 2008

NCR Mumbai Hyderabad Kolkata

Pune Chennai Ahmedabad Bangalore

Confidence Index (%)

City Confidence Index

H1 2009

4Q 2008

0 10 20 30 40 50 60 70 80 90 100

Bangalore

Ahmedabad

Chennai

Pune

Hyderabad

Mumbai

NCR



Long-Term Growth Drivers in India

�The rise of the middle class,

�The rise of a knowledge-based economy,

�Greater deregulation, and

�Growing lifestyle aspirations and growing affluence

END NOTES

47

Drop in confidence levels have resulted in developers

postponing launch of new projects and focusing on reducing

their current inventory; while financial institutions have

adopted a cautious approach in investing in upcoming real

estate projects.

In spite of several fiscal measures being undertaken by the RBI

and central government to stimulate demand, real estate

stakeholders are likely to remain cautious in 1H 2009 across

most markets. A large number of respondents foresee real

estate and finance market conditions worsening over the next

six months, indicating that 2009 is likely to have a weaker start

as compared to 2008.

Cushman & Wakefield's Real Estate Confidence Index is a measure

of the stakeholders' confidence level and expectation based on the

current market scenario and future outlook. To asses the current

confidence levels, a survey was conducted across the country, where

respondents (developers, financial institutions and end users) gave

their opinion on factors like financial environment, business

conditions, current and anticipated demand, movement of rental and

capital values, etc.

The gathered data was collated to assess shifts in confidence levels,

which would influence future business cycles in the Indian real estate

sector. A positive confidence level indicates increasing availability of

funds, heightened constructions activity and increasing demand. A

drop in confidence level, however, highlights a pessimistic view

resulting in a slowdown in demand and consumer spending.

Confidence Index Methodology

Outlook

Despite the credit crunch, real estate deals are still taking

place although at a slower pace. The outlook for the real

estate sector in India remains broadly better than other

emerging markets across the globe. According to Cushman &

Wakefield Research, greater demand from consumers and

falling dependency ratios will provide the basis for growth in

the Asia Pacific region, including India, which in turn will

support demand for real estate.

New Trends: Current & Upcoming

�Companies basing office leasing activities on short-term

outlook rather than on long-term expansion plans

�Need-based leasing of space gradually gaining ground as

demand for soft options declines

�Increasing subleasing of space by corporates in the office

sector

�Exit by commercial space takers from CBDs and probable

relocation to more sustainable areas

�

developments in a price-sensitive market

�Township projects with a balanced mix of developments

will do better

�Increasing opportunity being created by developers for

smaller space occupiers

Home buyers will look out for affordable and quality

�Resizing of retail outlets, increasing renegotiations on

rentals and even exit from unviable retail locations

�Retail spaces seeing conversion into office space for quick

revenue returns in certain micro markets

�Sustaining retail business through innovative revenue

models, such as minimum guarantee and revenue sharing

�Buy out of space rather than lease, by firms with enough

liquidity

�Consolidation of small-ticket players by bigger, more stable

players in the realty sector

Long-Term India Story Remains Intact

The long-term India story remains intact because the

fundamental growth drivers of the economy continue to exist.

The present crisis may be taken up in a positive spirit as a

learning experience for the sector to grow stronger, more

disciplined and organised at the end of the day, with greater

transparency. While the short-term investor has been hit, the

long-term investors as well as primary end user demand

remains intact. With the nation's realty growth drivers

remaining unchanged, the current situation is more like a

temporary, albeit longish, market upheaval which will right

itself in the long-term.

The current economic slowdown is forcing companies across

the world to formulate strategies that will help in surviving the

downturn. Falling demand and dropping top lines have

necessitated cost optimisation and a disciplined approach to

growth. Companies are finding these economic conditions

challenging and with compressed profit margins, it is likely that

they will squeeze operational efficiencies to extract maximum

value. In such a scenario, real estate, given its share in the

operational or capital expenditure of a company, can

contribute significantly to reducing operational cost and

protecting the bottom line. This, however, will not be achieved

by mere downscaling of the real estate exposure, but by

making real estate a key part of the overall business strategy

of any company.

Given the changing landscape, developments with a balanced

mix of real estate are likely to do better than most. Realistic

and more affordable price points in the housing sector, instead

of merely reduced square footage, are also required to revive

the market. To survive, the sector now needs to return its

focus on quality, affordability, efficiency and delivery.

C&W OUTLOOK

48

CUSHMAN & WAKEFIELD

Cushman & Wakefield is the largest privately held premier real estate services firm in the world. Founded in 1917, the firm

today has 227 offices in 59 countries around the globe with over 15,000 talented professionals. Cushman & Wakefield is

involved in every stage of the real estate process, from strategy to execution, representing clients in buying, selling, financing,

leasing, managing and valuing buildings that shape the skylines of the world; and provide strategic planning and research,

portfolio analysis, site selection, space location, project and property management services.

Cushman & Wakefield commenced India operations in 1997 and was the first international real estate service provider to

have been granted permission by the Government of India to operate as a wholly owned subsidiary. Today, with a work

force of over 1,300 employees, across offices in Gurgaon, New Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata and

Pune, C&W has serviced the needs of clients in all major Indian cities like Mohali, Chandigarh, Baroda, Goa, Nagpur, Jaipur,

Mysore, Coimbatore, Tuticorin, Cochin, amongst others.

India is one of the most promising countries in Asia while also being one of the finest IT destinations today; however, the

Indian real estate market is considered to be one of the most complex markets within Asia, hence creating the need for

professional real estate management.

From sophisticated, complex transactions to basic administration, our services are provided on a regional, national, and

worldwide basis to major corporations, developers, retailers, investors, entrepreneurs, government entities, small and

midsize companies, and financial institutions worldwide. Capitalising on global technology we maintain the highest quality of

real estate counsel and service.

We are strategically poised to service the varied needs of clients throughout the Indian sub-continent through our

comprehensive real estate solutions, furnished via seven main business lines: Occupier Services, Investment Services,

Development Services, Residential Services, Retail Services as well as Industrial Services

We strongly believe in maintaining integrity and achieving excellence in all that we do, creating a name that our clients

would always like to associate with.

For more information on Cushman & Wakefield, please contact :

Anurag Mathur

Managing Director, India

Tel: +91 80 4046 5555

Fax: +91 80 4046 5566

[email protected]

Sitara Achreja

Director

Marketing & Communications, India

Tel: +91 124 469 5555

Fax: +91 124 469 5566

[email protected]

Tanuja Rai Pradhan

National Head

Research and Business Analytics Group, India

Tel: +91 124 469 5555

Fax: +91 124 469 5566

[email protected]

This report contains information available to the public and has been relied upon by Cushman & Wakefield on the basis that it is accurate and complete. Cushman &

Wakefield accepts no responsibility if this should prove not to be the case. No warranty or representation, express or implied, is made to the accuracy or

completeness of the information contained herein and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal

without notice.

Our prior written consent is required before this report can be reproduced in whole or in part.

Copyright© 2009 Cushman & Wakefield (India) Pvt. Limited

All Rights Reserved

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Tel: (91 11) 2619 2512-17

Fax: (91 11) 2619 5829

Email: [email protected]

Gurgaon

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Fax: (95 124) 469 5566


Kolkata

Tel: (91 33) 3984 5239

Fax: (91 33) 3984 5221


Mumbai (Churchgate)

Tel: (91 22) 2281 3317/19/20

Fax: (91 22) 2202 5165


Mumbai (Goregaon)

Tel: (91 22) 6771 5555

Fax: (91 22) 6771 5566


Chennai

Tel: (91 44) 4299 5555

Fax: (91 44) 4299 5566


Bangalore

Tel: (91 80) 4046 5555

Fax: (91 80) 4046 5566


Pune

Tel: (91 20) 4003 2223-26

Fax: (91 20) 4003 2227


Hyderabad

Tel: (91 40) 4040 5555

Fax: (91 40) 4040 5566


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C&W India Real Estate Outlook 2009

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