Post on 15-Nov-2014
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
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
Maximum Rental Correction
Maximum Rental Growth
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
MUMBAI MARKET OUTLOOK
7
1 Demand= Fresh Pre commitment + Fresh Absorption for the year.
2 Average rentals are for bareshell facilities
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
Source: Cushman & Wakefield Research
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 )
MUMBAI MARKET OUTLOOK
8
1 Average high end values are for properties ranging from 3,000 to 6,000 sq.ft.
2 Forecast
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Low High Annual Growth Rate (%)
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
Low High Annual Growth Rate (%)
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.
MUMBAI MARKET OUTLOOK
9
1 Average high end values are for properties ranging from 3,000 to 6,000 sq.ft.
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
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
Low High Annual Growth Rate (%)
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
)
Source: Cushman & Wakefield Research
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.
MUMBAI MARKET OUTLOOK
10
1 Average rentals are for ground floor premises on carpet area.
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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.
MUMBAI MARKET OUTLOOK
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
Source: Cushman & Wakefield Research
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
Office Supply - 2008
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
Sectorwise Absorption Trend - 2008
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
Maximum Rental Correction
Maximum Rental Growth
Retail
Micro Market
Maximum Rental Correction
Maximum Rental Growth
Residential
Micro Market
Maximum Value Correction High End
Maximum Value Growth High End
Source: Cushman & Wakefield
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
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
3 Average rentals are for bareshell facilities
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
3Average Rental Values - Office Districts
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
)
Dec 2007 Dec 2008 Growth Rate (%)
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
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
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
1 Average high end values are for properties ranging from 2,000 to 4,000 sq.ft.
2 Average mid end values are for properties ranging from 1,600 to 2,000 sq.ft.
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.
Source: Cushman & Wakefield Research
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
-10
-5
0
5
10
15
20
Low High Annual Growth Rate (%)
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
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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.
Low High Annual Growth Rate (%)
1Average Residential Capital Values - High End
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
Low High Annual Growth Rate (%)
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
)
Average Main Street Rental Trend
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.
1 Average mid end values are for properties ranging from 1,600 to 2,000 sq.ft.
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
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Note : �The rental values indicated are base rents and do not include interest cost of security deposit, maintenance charges and other such outgoings.
�Average rentals are for ground floor premises on carpet area
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.
Main Street Development
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.
Sectorwise Absorption Trend - 2008
Others IT & ITeS Automotive
Telecommunications BFSI
88%
5%1%1%
Office Supply - 2008
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
Maximum Rental Correction
Maximum Rental Growth
Retail
Micro Market
Maximum Rental Correction
Maximum Rental Growth
Residential
Micro Market
Maximum Value Correction High End
Maximum Value Growth High End
Source: Cushman & Wakefield
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
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.
BANGALORE MARKET OUTLOOK
18
Peripheral - ITPL
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
10
20
30
40
50
60
1Average Rental Values Trend - Office Districts
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
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Supply Absorption VacancyRate (%)
Are
a (
mill
ion s
q.ft.)
Va
cancy R
ate
(%
)
Supply, Absorption and Vacancy Trends
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
Dec 2007 Dec 2008 Growth Rate (%)
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.
BANGALORE MARKET OUTLOOK
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.
1Average Residential Rental Values - High End
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
ve
lle R
dO
ff P
ala
ce
Rd
Off C
un
nig
ha
m R
dU
lso
or
Rd
Ric
hm
on
d R
dS
ad
ha
sh
ivn
ag
ar
He
bb
al
Ye
lah
an
ka
Ja
kku
r
Wh
ite
fie
ld
(Vill
as)
Fra
ze
r To
wn
Be
nso
n T
ow
nR
ich
ard
s T
ow
nD
olla
rs C
olo
ny
Ko
ram
an
ga
la,
Ou
ter
Rin
g R
d
Low High Annual Growth Rate (%)R
enta
l V
alu
es (
INR
/month
)
An
nu
al G
row
th R
ate
(%
)
2Average Residential Rental Values - Mid End
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
rath
alli
Wh
ite
fie
ldA
irp
ort
Rd
Sa
rja
pu
r R
dO
ute
r R
ing
Rd
HS
R L
ayo
ut
Ko
ram
an
ga
laJa
ka
sa
nd
ra
He
bb
al
Be
llary
Rd
Ye
lah
an
ka
Do
db
alla
pu
r
Ja
ya
na
ga
r, J
P
Na
ga
r, K
an
akp
ura
Rd
, K
an
akp
ura
Rd
Ma
llesh
wa
ram
Ra
jajin
ag
ar
Co
x T
ow
nF
raze
r To
wn
Ba
na
sw
ad
iH
RB
R
Va
sa
nth
Na
ga
rR
ich
mo
nd
To
wn
Ind
ira
na
ga
r
140,000
Low High Annual Growth Rate (%)
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.
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
BANGALORE MARKET OUTLOOK
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
(%
)
2Average Residential Capital Values - Mid End
Bru
nto
n R
dA
rtill
ery
Rd
Ali
Aska
r R
d
Ma
rath
alli
Wh
ite
fie
ldA
irp
ort
Rd
Sa
rja
pu
r R
dO
ute
r R
ing
Rd
HS
R L
ayo
ut
Ko
ram
an
ga
laJa
ka
sa
nd
ra
He
bb
al
Be
llary
Rd
Ye
lah
an
ka
Do
db
alla
pu
r
Ja
ya
na
ga
r, J
PN
ag
ar,
Ka
na
kp
ura
,R
d,
Ka
na
kp
ura
Rd
Ma
llesh
wa
ram
Ra
jajin
ag
ar
Co
x T
ow
n,
Fra
ze
r To
wn
, B
an
asw
ad
iH
RB
R
Va
sa
nth
Na
ga
rR
ich
mo
nd
To
wn
Ind
ira
na
ga
r
Low High Annual Growth Rage (%)
1 Average high end values are for properties ranging from 3,000 to 5,000 sq.ft.
2 Average mid end values are for properties ranging from 1,700 to 2,500 sq.ft.
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
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
La
ve
lle R
dO
ff P
ala
ce
Rd
Off C
un
nig
ha
m R
dU
lso
or
Rd
Ric
hm
on
d R
dS
ad
ha
sh
ivn
ag
ar
He
bb
al
Ye
lah
an
ka
Ja
kku
r
Wh
ite
fie
ld
(Vill
as)
0
5,000
1,0000
15,000
20,000
-12
-10
-8
-6
-4
-2
0
1Average Residential Capital Values - High End
Fra
ze
r To
wn
Be
nso
n T
ow
nR
ich
ard
s T
ow
nD
olla
rs C
olo
ny
Capital V
alu
es (
INR
/sq.ft.)
An
nu
al G
row
th R
ate
(%
)2
4
Ko
ram
an
ga
la,
Ou
ter
Rin
g R
d
Low High Annual Growth Rage (%)
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
Average Main Street Rental Trend
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.
Main Street Development
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 : �
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
BANGALORE MARKET OUTLOOK
21
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
Average Mall Rental Trend
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
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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.
Office Supply - 2008
Non IT IT SEZ IT Park
44%48%
8%
Sectorwise Absorption Trend - 2008
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
Maximum Rental Correction
Maximum Rental Growth
Retail
Micro Market
Maximum Rental Correction
Maximum Rental Growth
Residential
Micro Market
Maximum Value Correction High End
Maximum Value Growth High End
Source: Cushman & Wakefield
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
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
1Average Rental Values Trend - Office Districts
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
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
1Average Rental Values - Office Districts
Dec 2007 Dec 2008 Growth Rate (%)
Supply Absorption Vacancy Rate (%)
Are
a (
mill
ion
sq
.ft.
)
Vacancy R
ate
(%
)
Supply, Absorption and Vacancy Trends
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
(%
)
1Average Residential Rental Values - High End
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
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Rental Cycle
Market
Recession
Market
Bottoming
Market
Recovery
Market
Slowing
RentalTrough
StrengtheningMarket
RentalPeak
WeakeningMarket
4Q 2008
4Q 2009 (F)
Source: Cushman & Wakefield Research
Capital V
alu
es (
INR
/sq.ft.)
An
nu
al G
row
th R
ate
(%
)
1Average Residential Capital Values - High End
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
Low High Annual Growth Rate (%)
Re
nta
l V
alu
es (
INR
/mo
nth
)
An
nu
al G
row
th R
ate
(%
)
2Average Residential Rental Values - Mid End
-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
Low High Annual Growth Rate (%)
Ko
reg
ao
nP
ark
Bu
nd
G
ard
en
Kh
ara
di
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
Average Mall Rental Trend
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.
1 Average mid end values are for properties ranging from 1,200 to 1,400 sq.ft.
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
(%
)
1Average Residential Capital Values - Mid End
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.)
Low High Annual Growth Rate (%)
Ko
reg
ao
nP
ark
Bu
nd
G
ard
en
Kh
ara
di
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
Average Main Street Rental Trend
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.
Main Street Development
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
Note : �The rental values indicated are base rents and do not include interest cost of security deposit, maintenance charges and other such outgoings.
�Average rentals are for ground floor premises on carpet area
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%
Office Supply - 2008
39%
Commercial IT SEZ IT Parks
7%
54%
Sectorwise Absorption Trend - 2008
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
Maximum Rental Correction
Maximum Rental Growth
Retail
Micro Market
Maximum Rental Correction
Maximum Rental Growth
Residential
Micro Market
Maximum Value Correction High End
Maximum Value Growth High End
Source: Cushman & Wakefield
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
Gro
wth
Rate
(%
)
1Average Rental Values - Office Districts
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
CHENNAI MARKET OUTLOOK
28
Source: Cushman & Wakefield Research
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
0
10
20
30
40
50
1Average Rental Values Trend - Office Districts
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
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
Supply Absorption Vacancy Rate (%)
Are
a (
mill
ion s
q.ft.)
Va
ca
ncy R
ate
(%
)
Supply, Absorption and Vacancy Trends
0
2
4
6
8
10
12
2002
0
5
10
15
20
25
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)
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.
CHENNAI MARKET OUTLOOK
29
1 Average high end values are for properties ranging from 1,800 to 4,000 sq.ft.
2 Average mid end values are for properties ranging from 1,000 to 2,000 sq.ft.
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Capital V
alu
es (
INR
/sq.ft.)
An
nu
al G
row
th R
ate
(%
)
1Average Residential Capital Values - High End
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
Low High Annual Growth Rate (%)
R. A
Pu
ram
0
2,000
4,000
6,000
8,000
0
5
10
15
20
25
30
2Average Residential Capital Values - Mid End
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
Low High Annual Growth Rate (%)
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
CHENNAI MARKET OUTLOOK
30
Re
nta
l V
alu
es (
INR
/mo
nth
)
Annual G
row
th R
ate
(%
)
2Average Residential Rental Values - Mid End
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
Low High Annual Growth Rate (%)
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
1 Average high end values are for properties ranging from 1,800 to 4,000 sq.ft.
2 Average mid end values are for properties ranging from 1,000 to 2,000 sq.ft.
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.
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Bo
at C
lub
0
50,000
100,000
150,000
200,000
0
10
20
30
40
50
60
1Average Residential Rental Values - High End
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
Low High Annual Growth Rate (%)
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
Average Main Street Rental Trend
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
security deposit, maintenance charges and other such outgoings.
�Average rentals are for ground floor premises on carpet area
CHENNAI MARKET OUTLOOK
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.
Main Street Development
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.
Source: Cushman & Wakefield Research
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
Average Mall Rental Trend
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)
Source: Cushman & Wakefield Research
79%
Sectorwise Absorption Trend - 2008
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
Office Supply - 2008
IT Developments Non-IT IT SEZ
34%
51%
15%
HYDERABAD MARKET OUTLOOK
32
Commercial
Micro Market
Maximum Rental Correction
Maximum Rental Growth
Retail
Micro Market
Maximum Rental Correction
Maximum Rental Growth
Residential
Micro Market
Maximum Value Correction High End
Maximum Value Growth High End
Source: Cushman & Wakefield
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
(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.
Supply Absorption Vacancy Rate (%)
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
Supply, Absorption and Vacancy Trends
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
HYDERABAD MARKET OUTLOOK
33
Renta
l V
alu
e (
INR
/sq.ft./m
onth
)
0
10
20
30
40
50
1Average Rental Values Trend - Office Districts
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)
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
2007 2008 Growth Rate (%)
25
Off C
BD
Prim
eS
ub
urb
an
Su
bu
rba
n
Pe
rip
he
ral
I
Pe
rip
he
ral
II
1Average Rental Values - Office Districts
1 Above rentals are for warm shell facilities (shell and core facility, power, high side
air conditioning and 100% power backup)
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.
HYDERABAD MARKET OUTLOOK
34
An
nu
al G
row
th R
ate
(%
)
1Average Residential Capital Values - High End
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
Low High Annual Growth Rate (%)
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
(%
)
2Average Residential Capital Values - Mid End
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
Low High Annual Growth Rate (%)
Capital V
alu
es (
INR
/sq.ft.)
1 Average high end values are for properties ranging from 1,600 to 3,250 sq.ft.
2 Average mid end values are for properties ranging from 1,200 to 1,600 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.
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
HYDERABAD MARKET OUTLOOK
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
(%
)
1Average Residential Rental Values - High End
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
)
Low High Annual Growth Rate (%)
An
nu
al G
row
th R
ate
(%
)
2Average Residential Rental Values - Mid End
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
)
Low High Annual Growth Rate (%)
1 Average high end values are for properties ranging from 1,600 to 3,250 sq.ft.
2 Average mid end values are for properties ranging from 1,200 to 1,600 sq.ft.
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.
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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.
Main Street Development
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
security deposit, maintenance charges and other such outgoings.
�Average rentals are for ground floor premises on carpet area
HYDERABAD MARKET OUTLOOK
36
Renta
l V
alu
es (
inr/
sq.ft./m
onth
)
Average Main Street Rental Trend
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
Source: Cushman & Wakefield Research
INR
/Sq.ft./M
onth
Average Mall Rental Trend
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
Source: Cushman & Wakefield Research
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%
Office Supply - 2008
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
Panchghara
Park Street
KOLKATA MARKET OUTLOOK
37
Commercial
Micro Market
Maximum Rental Correction
Maximum Rental Growth
Retail
Micro Market
Maximum Rental Correction
Maximum Rental Growth
Residential
Micro Market
Maximum Value Correction High End
Maximum Value Growth High End
Source: Cushman & Wakefield
Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research
Sectorwise Absorption Trend - 2008
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.
KOLKATA MARKET OUTLOOK
38
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
0
20
40
60
80
100
1Average Rental Values Trend - Office Districts
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
Source: Cushman & Wakefield Research
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
0.00
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
1Average Rental Values - Office Districts
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
Dec 2007 Dec 2008 Growth Rate (%)
1 Average rentals are for bareshell facilities
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.
KOLKATA MARKET OUTLOOK
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.
Source: Cushman & Wakefield Research
Capital V
alu
es (
INR
/sq.ft.)
An
nu
al G
row
th R
ate
(%
)
1Average Residential Capital Values - High End
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
Low High Annual Growth Rate (%)
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
2Average Residential Capital Values - Mid End
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
Low High Annual Growth Rate (%)
Source: Cushman & Wakefield Research
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
Average Mall Rental Trend
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
KOLKATA MARKET OUTLOOK
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.
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Re
nta
l V
alu
es (
INR
/mo
nth
)
An
nu
al G
row
th R
ate
(%
)
2Average Residential Rental Values - Mid End
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
Low High Annual Growth Rate (%)
0
20,000
40,000
60,000
80,000
-15
-10
-5
0
5
10
15
1Average Residential Rental Values - High End
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
Low High Annual Growth Rate (%)
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
Average Main Street Rental Trend
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.
Main Street Development
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
Note : �The rental values indicated are base rents and do not include interest cost of security deposit, maintenance charges and other such outgoings.
�Average rentals are for ground floor premises on carpet area
KOLKATA MARKET OUTLOOK
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.
Source: Cushman & Wakefield Research
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.
Sectorwise Absorption Trend - 2008
BFSI Infrastructure / Construction Pharmaceuticals
Telecommunication Others
16%
17%
26%14%
27%
AHMEDABAD MARKET OUTLOOK
42
Commercial
Micro Market
Maximum Rental Correction
Maximum Rental Growth
Retail
Micro Market
Maximum Rental Correction
Maximum Rental Growth
Residential
Micro Market
Maximum Value Correction High End
Maximum Value Growth High End
Source: Cushman & Wakefield
Source: Cushman & Wakefield Research
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.
AHMEDABAD MARKET OUTLOOK
43
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Renta
l V
alu
es (
INR
/sq.ft./m
onth
)
0
20
40
60
80
100
1Average Rental Values Trend - Office Districts
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
1Average Rental Values - Office Districts
30
35
40
2007 2008 Growth Rate (%)
35
Ash
ram
R
oa
d
Sa
rkh
ej
Ga
nd
hin
ag
ar
Hig
hw
ay
Sa
telli
teR
oa
d
1 Average rentals are for bareshell facilities
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
)
Average Mall Rental Trend
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
AHMEDABAD MARKET OUTLOOK
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
1Average Residential Capital Values - High End
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.)
Low High Annual Growth Rate (%)
1Average Residential Rental Values - High End
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
)
Dec 2007 Dec 2008 Growth Rate (%)
1 Average high end values are for properties ranging from 1,500 to 4,000 sq.ft.
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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.
Main Street Development
C.G Road continues to be the most active and sought after
main streets in Ahmedabad and was preferred by retailers for
Note : �The rental values indicated are base rents and do not include interest cost of security deposit, maintenance charges and other such outgoings.
�Average rentals are for ground floor premises on carpet area
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.
Average Main Street Rental Trend
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
AHMEDABAD MARKET OUTLOOK
45
Source: Cushman & Wakefield Research
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
Source: Cushman & Wakefield Research
Source: Cushman & Wakefield Research
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
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anurag.mathur@ap.cushwake.com
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Director
Marketing & Communications, India
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sitara.achreja@ap.cushwake.com
Tanuja Rai Pradhan
National Head
Research and Business Analytics Group, India
Tel: +91 124 469 5555
Fax: +91 124 469 5566
tanuja.pradhan@ap.cushwake.com
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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
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