India Real Estate

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RESEARCH Dr. Samantak Das Chief Economist and National Director, Research [email protected] RESIDENTIAL AGENCY Mudassir Zaidi INDIA REAL ESTATE - RESIDENTIAL AND OFFICE JULY - DECEMBER 2015 National Director, Residential [email protected] OFFICE AGENCY INDIA REAL ESTATE Viral Desai National Director, Of ce Agency [email protected] RESIDENTIAL AND OFFICE

CAPITAL MARKETS Rajeev Bairathi JULY - DECEMBER 2015 Executive Director, Capital Markets [email protected]

ADVISORY Saurabh Mehrotra National Director, Advisory [email protected]

CITIES Mumbai (Corporate Ofﬁce) Shishir Baijal Chairman & Managing Director [email protected] Ahmedabad Balbirsingh Khalsa, National Director [email protected] Bengaluru Satish BN, Executive Director-South [email protected] Chennai Kanchana Krishnan, Director [email protected] Hyderabad Vasudevan Iyer, Director [email protected] NCR Rajeev Bairathi, Executive Director-North [email protected] Pune Shantanu Mazumder, Director Knight Frank India research provides development and strategic advisory to a wide range of [email protected] clients worldwide. We regularly produce detailed and informative research reports which provide valuable insights on the real estate market. Our strength lies in analysing existing trends and predicting future trends in the real estate sector from the data collected through market surveys and interactions with real estate agents, developers, funds and other stakeholders. RECENT MARKET-LEADING RESEARCH PUBLICATIONS

© Knight Frank India Pvt.Ltd THE This report is published for general information only and WEALTH REPORT not to be relied upon in anyway. Although high standards The global perspective on prime property and investment 2016 have been used in the preparation of the information analysis, views and projections presented in the report, no responsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report this material does not necessarily represent the view of Knight Frank in relation to

10th Edition particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior GLOBAL CITIES RESIDENTIAL THE WEALTH THINK INIDIA. written approval of Knight Frank to the form and content 2016 REPORT INVESTMENT ADVISORY REPORT 2016 THINK RETAIL. 2016 within which it appears. REPORT 2016

CONTENT

04 INDIA

12 AHMEDABAD

21 BENGALURU

41 CHENNAI

59 HYDERABAD

76 KOLKATA

88 MUMBAI

105 NCR

124 PUNE

2 3 INDIA REAL ESTATE RESEARCH

RESIDENTIAL MARKET RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND PRICE TRENDS 2015 ended with the FIGURE 1 HALF-YEARLY LAUNCHES AND ABSORPTION TRENDS (TOP EIGHT CITIES) lowest number of new

LAUNCHES ABSORPTION launches and sales volumes across the top Hetal Bachkaniwala 180,000 Vice President - Research eight cities of India since 2010. While the sales 160,000 volume during the year was similar to that in 2014, 140,000 new launches fell sharply, INDIA Number of unit s by 22% 120,000

100,000 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E

Source: Knight Frank Research Note: The top eight cities are Mumbai, NCR, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad • 2015 ended with the lowest was followed by NCR and Mumbai number of new launches and sales at 24% and 23%, respectively. volumes across the top eight cities • However, cities such as Pune, of India since 2010. While the sales Hyderabad and Ahmedabad have volume during the year was similar bucked the trend with a growth of to that in 2014, new launches fell 9%, 11% and 50%, respectively, sharply, by 22%. in H2 2015 compared to H2 2014. • However, H2 2015 witnessed a The sharp rise in Ahmedabad’s marginal recovery in both launches new launches could be attributed and absorption as compared to H1 to the low base in H2 2014, when 2015. The festive season seems to new launches had come to a have aided the market in gradually complete standstill on the back of recovering from one of the worst poor demand. periods in the Indian residential • Going forward, Mumbai and NCR market. will continue to witness fewer new • New launches and the sales launches in H1 2016. However, volume have recovered from their new launches in Bengaluru are low of 113,500 units and 121,050 projected to jump by more than units, respectively, in H1 2015 to 21%, as the steady sales volume 126,860 units and 140,210 units, has encouraged developers to respectively, in H2 2015. push new projects in the coming months. • Bengaluru witnessed the sharpest drop in new launches, at 26% in H2 2015, compared to the same period in the preceding year. This

4 5 INDIA REAL ESTATE RESEARCH

the ticket size of `10 mn. The witnessing better traction than all leaves the mid-segment as the only CITY-WISE SPLIT OF RESIDENTIAL LAUNCHES corresponding figures for NCR the other segments since the last feasible option. and Bengaluru are 8% and 20%, two years. The primary reason • In terms of affordability, the FIGURE 2 respectively. for this trend is that homebuyers Ahmedabad and Kolkata markets HALF-YEARLY NEW LAUNCHES (TOP EIGHT CITIES) are averse to buying in peripheral • The maximum number of are leading, as the total new H1 2015 H2 2015 H1 2016 E locations despite the availability new launches in H2 2015 was launches in H2 2015 below the of affordable housing, as poor 40,000 witnessed in the mid-segment, ticket size of `2.5 mn in these access to employment hubs and with a ticket size of `2.5 – 7.5 cities stand at 45% and 33%, 35,000 underdeveloped infrastructure mn. This segment has been respectively. render them unattractive. This 30,000

25,000 FIGURE 4 TICKET-SIZE SPLIT OF LAUNCHED UNITS IN H2 2015 20,000 <`2.5 MN `2.5-5 MN `5-7.5 MN `7.5-10 MN `10--20 MN >`20 MN

15,000 Number of units 100%

10,000 90%

80% 5,000 70% 0 MUMBAI NCR BENGALURU PUNE CHENNAI HYDERABAD KOLKATA AHMEDABAD 60% 50% Source: Knight Frank Research 40%

30% CITY-WISE SPLIT OF RESIDENTIAL SALES 20%

10% FIGURE 3 0 HALF-YEARLY ABSORPTION (TOP EIGHT CITIES) MUMBAI NCR BENGALURU PUNE CHENNAI HYDERABAD KOLKATA AHMEDABAD H1 2015 H2 2015 H1 2016 E Source: Knight Frank Research 40,000

35,000

30,000 PREMIUM RESIDENTIAL MARKET LAUNCHES AND ABSORPTION TRENDS 25,000 • The premium segment had taken 20,000 FIGURE 5 a hard hit in sales volume in 2014 15,000 HALF-YEARLY LAUNCHES AND ABSORPTION TRENDS IN and H1 2015. This led to the Number of unit s PREMIUM MARKETS (TOP EIGHT CITIES) developer community taking a 10,000 cautious stand before launching LAUNCHES ABSORPTION 5,000 new projects in this segment. New 5,000 launches in H2 2015 fell drastically, 0 by 33% compared to the same MUMBAI NCR BENGALURU PUNE CHENNAI HYDERABAD KOLKATA AHMEDABAD period in the preceding year. Source: Knight Frank Research 4,000 • In contrast to the sharp fall in new launches, the sales volume • The sales volume in H2 2015 in 2015. The unprecedented floods the sales volume in Bengaluru is remained steady in H2 2015. most of the cities has shown a in the city during the second half estimated to grow by 28% in H1 3,000 The steady growth in cities positive trend, with NCR and of the year impacted homebuyer 2016, it is projected to grow by such as Hyderabad, Kolkata Number of units Kolkata growing at the fastest sentiments adversely, thereby 42% in Kolkata during the same and Ahmedabad has helped in pace. While NCR witnessed a 15% resulting in lower sales. period. 2,000 maintaining the sales momentum jump in sales, Kolkata saw it grow in the premium segment. • Going forward, other than • Mumbai continues to remain the by 29%. Bengaluru and Kolkata, the cities most unaffordable market in India, 0 • Chennai recorded the sharpest fall will continue to observe a tepid with more than 26% of the new H1 2014 H2 2014 H1 2015 H2 2015 in the sales volume, at 15% in H2 growth in the sales volume. While launches in H2 2015 being above Source: Knight Frank Research

6 7 INDIA REAL ESTATE RESEARCH

UNSOLD INVENTORY LEVELS (TOP EIGHT CITIES) OFFICE MARKET FIGURE 6 RELATIVE HEALTH OF THE RESIDENTIAL MARKETS (TOP EIGHT CITIES) OFFICE MARKET STOCK, NEW COMPLETIONS, ABSORPTION AND VACANCY TRENDS (TOP SIX CITIES) 20 Based on the sales • Absorption surpassed new momentum of the FIGURE 1 completions for the second NEW COMPLETIONS, ABSORPTION AND VACANCY LEVEL (TOP SIX CITIES) preceding eight quarters, HYDERABAD straight year across the top six NEW COMPLETIONS ABSORPTION VACANCY (RHS) it will take around 11 s 15 cities of India, pushing vacancy MUMBAI levels to an eight-year low. quarters to exhaust the NCR Vacancy levels reached 15.6% in 25 20% H2 2015, significantly lower from current unsold inventory CHENNAI the peak of 21% in 2012. 20 AHMEDABAD available in the top eight 10 18% • While 41.1 mn sq ft of space was of inventory in quarter cities of India PUNE absorbed in 2015, only 34.5 mn 15 Age BEGALURU KOLKATA sq ft of new supply came online. 16%

The trend is similar to what was mn sq.ft . 10 5 observed in 2014, when 38.3 510 15 20 mn sq ft of space was absorbed 14% against a supply of 34.9 mn sq ft. 5 QTS Source: Knight Frank Research • H2 2015 witnessed a 14% growth Note: The size of the bubble indicates the quantum of unsold inventory. QTS is the quarter to in transactions at 23.2 mn sq 0 12% sell unsold inventory. ft, compared to 20.4 mn sq ft H1 2014 H2 2014 H1 2015 H2 2015 H1 2016E • Fewer new launches have helped in residential markets in the country, recorded in H2 2014. Strong Source: Knight Frank Research bringing down the unsold inventory with low quarters to sell unsold demand from the IT/ITeS and The top six cities are Mumbai, NCR, Bengaluru, Pune, Chennai and Hyderabad level in India during the last year. inventory and minimal ages of manufacturing industries has amount of occupied space, at 113 the last six months. Unsold inventory decreased by unsold inventory. pushed the transaction volume to mn sq ft. 3%, from 714,970 units in H2 2014 this level. • NCR continues to be the worst • Among the top six cities of India, to 691,700 units in H2 2015. performing market in India, as • The combined office space stock • During H2 2015, while Bengaluru Bengaluru currently has the and Mumbai observed the highest lowest vacancy level at 7.5%, • Based on the sales momentum of it will take more than four years in the top six cities of India has absorption at 5 mn sq ft each, NCR followed by Pune and Hyderabad the preceding eight quarters, it will to exhaust the existing unsold currently reached 560 mn sq ft, of recorded the maximum delivery at 10.8% and 14.6% respectively. take around 11 quarters to exhaust inventory of 206,000 units. This which 473 mn sq ft is occupied. of new space at 6 mn sq ft. Other Mumbai and NCR have the highest the current unsold inventory. is significantly higher than the While NCR leads in terms of total average time of less than three office space stock, at 138 mn sq ft, than NCR, transactions in all the vacancy levels at 20% and 21.5% • Pune and Bengaluru continue to years that the other cities will take. Bengaluru accounts for the highest cities surpassed new supply during respectively. be among the best performing

OUTLOOK FOR THE NEXT SIX MONTHS FIGURE 2 OFFICE STOCK AND OCCUPIED STOCK (AS OF DECEMBER 2015) H1 2015 H1 2016E Growth STOCK OCCUPIED STOCK Launches (units) 113,499 118,402 4% 160 Absorption (units) 121,051 133,556 10% 140 120 Source: Knight Frank Research • The improvement in the overall massive 28% growth. • Prices are estimated to remain 100 economic sentiment and the stagnant in the coming six months, • In terms of new launches, H1 80 subdued growth in price are as the existing unsold inventory mn sq.ft . 2016 will remain at a similar level 60 set to improve the sales volume will keep them in check. However, as H1 2015. While Mumbai, NCR, marginally in H1 2016. While the none of the cities are expected 40 Chennai and Hyderabad will growth in sales volume across to witness a fall in prices, as the 20 continue to record negative growth most of the cities is expected new supply entering the market rates in new launches, Bengaluru 0 to remain in the range of 4-5%, will be considerably lower than the and Pune will surge ahead. MUMBAI NCR BENGALURU PUNE CHENNAi HYDERABAD Bengaluru is set to lead with a demand for housing. Source: Knight Frank Research

8 9 INDIA REAL ESTATE RESEARCH

• The IT/ITeS sector continued FIGURE 3 FIGURE 5 to lead in terms of absorption CITY-WISE NEW COMPLETIONS, ABSORPTION AND DEAL SIZE ANALYSIS The Bengaluru residential across the top six cities in H2 VACANCY LEVELS IN H2 2015 market strove to recover 2015. While one-third of this space H2 2014 H2 2015 NEW COMPLETIONS ABSORPTION VACANCY (RHS) was transacted in Bengaluru, it 100,000 from the setback that it is surprising to note that Mumbai 8 25% accounted for more than 20% had suffered in the first 7 80,000 21.5% of the total. Since Mumbai has 20.0% 20% half of the year (H1 2015). historically been identified with 6 60,000 While the number of new the banking, financial services 5 15.4% 14.6% 15% and insurance (BFSI) sector, such

sq.ft . launches continued to 4 10.8% 40,000

a large number of transactions in mn sq.ft. 10% the IT/ITeS space is contrary to the 3 fall in H2 2015 compared 7.5% 20,000 popular belief that the city is not 2 to H2 2014, the rate of 5% conducive for IT/ITeS occupiers. 1 0 decline was relatively • The development of Navi Mumbai 0 0 MUMBAI NCR BENGALURU PUNE CHENNAi HYDERABAD and Thane as IT/ITeS hubs at MUMBAI NCR BENGALURU PUNE CHENNAi HYDERABAD restrained at 26%. The Source: Knight Frank Research the periphery of Mumbai, along Source: Knight Frank Research city’s sales volume, on with the shortage of quality office OUTLOOK FOR THE NEXT SIX MONTHS space in other cities, seems to total space absorbed in H2 2015. • Bengaluru continues to lead in the other hand, remained be drawing occupiers to the city. NCR and Hyderabad recorded terms of average deal size, as H1 2015 H1 2016E Growth steady Additionally, the sharp appreciation the maximum transactions in this compared to the rest of the cities in rental values across cities sector. in India. The average deal size in New completions (mn sq ft) 15.7 17.0 8% such as Bengaluru, Pune and Bengaluru stood at 80,000 sq ft • The manufacturing sector Gurgaon over the last two years in H2 2015, significantly higher Absorption (mn sq ft) 17.9 18.8 5% witnessed a phenomenal recovery has enabled Navi Mumbai and than the 21,000-39,000 sq ft in terms of office space demand, Vacancy 17% 15% Thane to emerge as attractive IT/ recorded in the rest of the cities. as its share in the total space ITeS destinations on the back Consolidation of space within the Source: Knight Frank Research went up from just 9% in H2 2014 competitive rental values. IT/ITeS sector, along with strong to more than 18% in H2 2015. • New completions are set to get will continue to remain strong and • Rents in most of the cities have demand from the ecommerce • The other services sector, which The uptick in demand from a marginal boost in the coming is projected to grow by 5% in H1 increased steadily since the last segment, seems to have pushed constitutes ecommerce, media, manufacturing was observed six months, as cities such as 2016 from 17.9 mn sq ft to 18.8 two years. Going forward, this the average size of deals in consulting and telecom, among across all the six cities, with Mumbai, Bengaluru, Chennai and mn sq ft. This will exert further trend is expected to continue in Bengaluru to this level. others, accounted for 23% of the Mumbai and NCR leading the way. Hyderabad will witness the delivery pressure on the vacancy levels, the coming six-month period, with of multiple projects. which are expected to drop to 15% Pune and Bengaluru projected to by the end of H1 2016. grow at the fastest pace. • However, demand for office space FIGURE 4 SECTOR-WISE ABSORPTION SPLIT IN H2 2015 FIGURE 6 IT/ITeS BFSI ( Including support service) MANUFACTURING OTHER SERVICES CITY-WISE NEW COMPLETIONS, ABSORPTION AND VACANCY LEVELS FORECASTED FOR H1 2016 100% NEW COMPLETIONS ABSORPTION VACANCY (RHS)

80% 8 25%

7 60% 21.5% 19.7% 20% 6

mn sq.ft . 40% 5 15% 13.4% 14.4% 4

20% mn sq.ft. 10% 3 8.1%

0 2 6.8% 5% MUMBAI NCR BENGALURU PUNE CHENNAI HYDERABAD 1

Source: Knight Frank Research 0 0 MUMBAI NCR BENGALURU PUNE CHENNAi HYDERABAD

Source: Knight Frank Research

10 11 INDIA REAL ESTATE RESEARCH

RESIDENTIAL MARKET H2 2015 brings offers RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND some cheer, with a PRICE TRENDS positive sales volume growth compared to FIGURE 1 AHMEDABAD MARKET TRENDS the same period in the

LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) previous year. Fuelled by Hetal Bachkaniwala 12,000 3,000 the festive season during Vice President - Research 10,000 the second half of the year, 2,800 demand pushed the sales 8,000 2,600 volume up by 13%. 6,000

2,400 ` / sq ft 4,000

2,200 AHMEDABAD Number of unit s 2,000

0 2,000 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E

Source: Knight Frank Research • The situation in Ahmedabad’s worsened the oversupply situation residential markets deteriorated in the city. in 2015. While its sales volume • However, H2 2015 offers some continued to fall, new launches cheer, with a positive sales volume made a quick recovery. growth compared to the same • The sales volume in Ahmedabad period in the previous year. Fuelled fell by 9% during 2015, to 16,800 by the festive season during the units from 18,500 in the year second half of the year, demand before. This is the city’s lowest pushed the sales volume up by sales volume in the last six years 13%, from 8,020 units in H2 2014 and has nearly halved from its to 9,075 in H2 2015. peak of 30,000 units in 2012. • The weighted average price rise • New launches recovered by 11% has remained muted at 2-3% in the during 2015, to 15,500 units from last six months, and we expect it 14,000 in 2014. This has increased to increase in the same range over the stress in the market and the next six months.

MICRO-MARKET SPLIT OF RESIDENTIAL LAUNCHES

• North Ahmedabad, with locations 2015, 78% of the new launches in market. such as Gota, New Ranip, Tragad, this market were below the ticket • New launches in East and West Chandkheda and Motera, has size of `5 mn. Ahmedabad have dropped in the witnessed the maximum number • Central Ahmedabad is another last year, as developers are still of new launches during H2 2015. market that witnessed a significant trying to sell the residential units in With prices in West and Central jump in new launches during their previously-launched projects Ahmedabad breaching the H2 2015. Given the dismal price that remain unsold despite nearing homebuyers’ affordability level, performance in the rest of the completion. North Ahmedabad has emerged city since the last two years, as the most preferred destination developers seem to have shifted for affordable housing. During H2 their focus back to the Central

12 13 INDIA REAL ESTATE RESEARCH

FIGURE 2 MICRO-MARKET-WISE RESIDENTIAL SALES With the dismal price MICRO-MARKET SPLIT OF LAUNCHED UNITS performance in the rest H2 2014 H1 2015 H2 2015 MICRO-MARKET LOCATIONS 40% of the city since the last 35% Central Paldi, Vasna, Navrangpura, Maninagar, Dudheshwar, Ambawadi 35% 35% two years, developers 30% 29% East Naroda, Vastral, Nikol, Kathwada Road, Odhav 26% seem to have shifted their 25% 23% 22% 23%22% North Gota, New Ranip, Tragad, Chandkheda, Motera focus back to the Central 20% 19% 19% 15% South Narol, Vatva, Vinzol, Hathijan market. 15% 12% West S G Highway, Prahlad Nagar, Bopal, Thaltej, Science City Road 10% 8% 5% 6% 5%

0 CENTRAL EAST NORTH SOUTH WEST

Source: Knight Frank Research

H2 2015 7,490 units H2 2014 4,990 units H1 2015 8,060 units

FIGURE 3 TICKET SIZE SPLIT OF LAUNCHES DURING H2 2015

CENTRAL EAST NORTH SOUTH WEST

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% - < `2.5 MN `2.5 - 5 MN `5 - 7.5 MN `7.5 - 10 MN `10-20 MN >-`20 MN

Source: Knight Frank Research

14 15 INDIA REAL ESTATE RESEARCH

• The micro-market split of FIGURE 4 absorption has not witnessed MICRO-MARKET-WISE RESIDENTIAL SALES any significant change in the last STRONG DEMAND FROM HOMEBUYERS BRINGS BACK DEVELOPER FOCUS ON H2 2014 H1 2015 H2 2015 six months. While the shares of THE CITY CENTRE Central and North Ahmedabad 40% 36% have increased marginally since 35% 32% Central Ahmedabad, with locations thereby disappointing homebuyers and more modern apartments in 30% 30% 30% H1 2015, the shares of the rest of 30% 28% such as Paldi, Naranpura, who had expected a double-digit the vicinity. Sensing this demand, the micro-markets have reduced Ambawadi and Vasna, has growth. However, the residential the developer community launched slightly. 25% witnessed a phenomenal recovery markets in Central Ahmedabad 20% several projects in 2015, resulting 17%18% • Central Ahmedabad’s share has 17% in the last year. While the sales continued to witness a steady in a four-fold jump in the number of been increasing over the last 12 15% 14%14%14% volume dipped by 37%, from 1,200 appreciation despite the sluggish units launched during the year. A months. Better connectivity with 10% 9% 8% units in 2013 to less than 760 units demand. This scenario seems to total of 1,950 units were launched the city centre, proximity to the 4% 5% central business district (CBD) and in 2014, there was a trend reversal have revived homebuyer interest in in 2015, compared to less than 480 the presence of a well-developed 0 in 2015, when sales jumped by more locations such as Paldi, Naranpura, units in the preceding year. CENTRAL EAST NORTH SOUTH WEST retail market continue to attract than 90% to 1,460 units. There are Ambawadi and Vasna, despite While Central Ahmedabad still homebuyers to this micro-market Source: Knight Frank Research several reasons for such a dramatic the high ticket size of the projects despite its higher pricing. holds an unsold inventory of 6.3 recovery in sales: located there. quarters, it is considerably lower Homebuyers in Ahmedabad Another reason for the uptick in than the city’s 7.6 quarters of unsold consider price appreciation in demand in Central Ahmedabad inventory. Hence, compared to other H2 2015 property an important variable is the launch of lifestyle projects cities where the residential market in their purchase decision, even with all the amenities of modern of the central zones is suffering due 9,075 for properties bought for self- buildings. This has attracted a large to sluggish demand and high unsold units consumption. Since 2013, price number of homebuyers residing inventory, Ahmedabad’s Central H2 2014 growth in most locations in in old buildings within Central zone is a very bright spot. 8,020 Ahmedabad has remained stagnant, Ahmedabad and scouting for bigger units H1 2015 PREMIUM RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND PRICE TRENDS 7,750 units MICRO-MARKET PREMIUM LOCATIONS

Central Ambawadi, Navrangpura, Shahibaug, Nehru Nagar

West Ambli, Bodakdev, Jodhpur, Prahlad Nagar, Satellite, Thaltej, Vastrapur

MICRO-MARKET SPLIT OF UNDER-CONSTRUCTION UNITS AS OF DECEMBER 2015 FIGURE 5 PREMIUM MARKET TRENDS A LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) CENTRAL 7% • Central Ahmedabad accounts for B only 7% of the total number of 1,400 6,000 EAST 24% under-construction units in the 1,200 C 34% city, as the majority of the new 5,500 NORTH projects are being launched in D 1,000 other parts of the city. 5,000 SOUTH 13% E • The maximum under-construction 800 C B WEST 22% units are present in North 4,500 600 Ahmedabad, with locations such A 4,000 ` / sq ft D as Gota, Tragad, Chandkheda and Number of unit s 400 Note: Premium markets include locations Motera witnessing a construction where the average ticket size of a residential boom since the last three years. 200 3,500 E unit is above `15 mn, are in close proximity This is followed by East and West to the central business district of the city and 0 Ahmedabad, with a 24% and 22% 3,000 have witnessed new project launches in the H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 share, respectively. preceding three years Source: Knight Frank Research Source: Knight Frank Research

16 17 INDIA REAL ESTATE RESEARCH

• The premium market of have fallen drastically, by 60% have boosted project prices in Ahmedabad, which constitutes during the same period. the premium segment, with H2 PRICE MOVEMENT DURING H2 2015 locations such as Ambawadi, 2015 observing a 9% price growth • Lack of investor interest in the Bodakdev, Jodhpur, Navrangpura compared to H2 2014. Product WEIGHTED AVERAGE PRICE MOVEMENT IN AHMEDABAD peripheral markets due to poor and Prahlad Nagar, among differentiation, extra amenities and price performance has shifted others, has observed a positive close proximity to the city centre WEIGHTED AVERAGE PRICE IN H2 2015 the focus back to the premium LOCATION 12 MONTH CHANGE 6 MONTH CHANGE growth in sales volume, at 30% have helped the newly-launched (`/SQ FT) locations. during H2 2015, compared to the projects command a stronger price same period in the previous year. • Fewer new launches and the growth in these locations. Ahmedabad 2,770 3.3% 1.5% However, new project launches steady growth in sales volume Premium markets 5,325 9.0% 3.7%

AHMEDABAD MARKET HEALTH PRICE MOVEMENT IN SELECT LOCATIONS PRICE RANGE IN H2 2015 12 MONTH 6 MONTH FIGURE 6 • The quarters to sell unsold LOCATION MICRO-MARKET QUARTERS TO SELL (QTS) UNSOLD INVENTORY ANALYSIS inventory (QTS) is the number (`/SQ FT) CHANGE CHANGE

AHMEDABAD PREMIUM MARKETS of quarters required to exhaust Ambawadi Central 5,500 - 8,500 5% 2% the existing unsold inventory in 24 Navrangpura Central 5,500 - 8,500 4% 2% the market. The existing unsold Mani Nagar Central 3,500 - 6,500 2% 1% inventory is divided by the average 20 sales velocity of the preceding Paldi Central 5,000 - 6,800 2% 1% eight quarters in order to arrive at Naroda East 2,000 - 3,500 1% 0% 16 the QTS number for that particular Vastral East 1,800 - 2,200 2% 1% quarter. A lower QTS indicates a 12 Nikol East 1,800 - 2,200 1% 0% healthier market.

No. of Quarters Prahlad Nagar West 5,000 - 6,000 6% 3% 8 • The QTS for Ahmedabad has Satellite West 5,500 - 7,200 1% 0% been increasing gradually since 4 December 2013 and currently Thaltej West 5,000 - 7,000 5% 2% stands at 7.6 quarters. However, Vastrapur West 5,500 - 7,500 2% 0% 0 the QTS for the premium markets Bopal West 3,500 - 5,000 2% 1% DEC-13 MAR-14 JUN-14 DEC-14 MAR-15 JUN-15 SEP-15 DEC-15 in the city has witnessed a much Chandkheda North 2,500 - 3,800 3% 1% sharper rise and is currently at 21 Source: Knight Frank Research quarters. Motera North 2,800 - 3,600 2% 1% Gota North 3,000 - 3,800 3% 1% FIGURE 7 • West Ahmedabad is the worst MICRO-MARKET-WISE QTS VS AGE OF INVENTORY performer among the city’s zones. Source: Knight Frank Research

CENTRAL WEST NORTH SOUTH EAST High ticket sizes and a supply glut • The price growth across most 14 are the primary reasons for the locations in Ahmedabad during H2 The price growth across poor performance reported by this 2015 has been tepid, despite the most locations in zone. sales volume witnessing a marginal recovery. The pressure of the unsold • Central Ahmedabad is currently Ahmedabad during H2 inventory has restricted developers s the best performing market, as 2015 has been tepid, 11 from hiking prices in most of the restricted supply and steady newly-launched projects. demand have helped in bringing despite the sales volume down the quarters to sell unsold • Prices in certain premium witnessing a marginal inventory there. locations, such as Ambawadi, Prahlad recovery. The pressure of 8 Nagar and Thaltej, have increased by

of inventory in quarter • With a poor price appreciation 5-6% during the last 12 months on and a supply glut in the rest of the unsold inventory has Age the back of the restricted supply and the city’s zones, investor focus restricted developers from the strong homebuyer preference for has shifted back to Central these locations. hiking prices in most of the 5 Ahmedabad. This has helped in 5811 14 pushing up the sales volume in this newly-launched projects. zone during the last 12 months. QTS Source: Knight Frank Research

18 19 INDIA REAL ESTATE RESEARCH

OUTLOOK FOR THE NEXT SIX MONTHS

South Ahmedabad will Projections H1 2015 H1 2016E Growth continue to witness a Launches (units) 8,060 9,070 13% subdued sales volume, as Absorption (units) 7,750 8,080 4%

its great distance from the Weighted average price (`/sq ft) 2,640 2,770 5%

city centre, the presence Source: Knight Frank Research of a large number of • The positive sentiment in the economic front. Sangeeta Sharma Dutta residential market due to the manufacturing units and • South Ahmedabad will continue to Lead Consultant - Research revival in manufacturing activity, witness a subdued sales volume, poor infrastructure facilities the improving business sentiment as its great distance from the city and the renewed traction Gujarat are expected to restrict centre, the presence of a large International Finance Tec-City number of manufacturing units and homebuyer interest in this (GIFT) are expected to usher in poor infrastructure facilities are a double-digit growth in new zone. expected to restrict homebuyer launches during H1 2016. We BENGALURU interest in this zone. forecast that new launches will increase by 13% in H1 2016, to • The sales volume in West 9,070 units, compared to 8,060 Ahmedabad is estimated to units in H1 2015. increase during H1 2016 compared to H1 2015, albeit at a slower pace • North and East Ahmedabad will compared to the other parts of the continue to dominate in terms of city. High ticket size and the ample new launches, as their proximity availability of relatively cheaper to GIFT and the availability of options in other micro-markets of large tracts of vacant land make the city could delay a full recovery these micro-markets attractive to in the sales volume of this zone. developers. • However, the growth in the city’s sales volume will be limited to 4% during H1 2016 compared to the same period last year, as homebuyers are still in a wait-and- watch mode, expecting further positive signs on the country‘s

20 21 INDIA REAL ESTATE RESEARCH

RESIDENTIAL MARKET MICRO-MARKET SPLIT OF RESIDENTIAL LAUNCHES BENGALURU RESIDENTIAL MARKET LAUNCHES, FIGURE 2 ABSORPTION AND PRICE TRENDS MICRO-MARKET SPLIT OF LAUNCHED UNITS The Bengaluru residential H2 2014 H1 2015 H2 2015 The southern zone of the FIGURE 1 40% 38% market strove to recover BENGALURU MARKET TRENDS 37% city witnessed the majority 35% 34% from the setback that it LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) 32% of the projects below the 30% 28% 26% 25% 25% had suffered in the first 40,000 5,000 25% `2.5 mn ticket size in H2 22% half of the year (H1 2015). 35,000 20% 2015. The expectation While the number of new 30,000 15% of better connectivity, 13% 11% launches continued to 25,000 10% 9% arising from the planned 20,000 4,500

` / sq ft 5% fall in H2 2015 compared 0% 0% 0% Bangalore Metro rail in

Number of unit s 15,000 to H2 2014, the rate of 0 its second phase, has 10,000 CENTRAL EAST NORTH SOUTH WEST

decline was relatively 5,000 Source: Knight Frank Research resulted in these southern

restrained at 26%. The 0 4,000 • The southern market, which had • The southern zone of the city peripheral locations H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E city’s sales volume, on witnessed a somewhat waning witnessed the majority of the coming up as promising Source: Knight Frank Research developer interest in H2 2014, projects below the `2.5 mn ticket the other hand, remained budget destinations. By • The Bengaluru residential market price appreciation. saw a 30% growth in launches in size in H2 2015, accounting for steady strove to recover from the setback H2 2015. This can be attributed almost 88% of the total new contrast, North Bengaluru • With the market struggling to that it had suffered in the first half to the number of residential launches in that segment. A major regain its past composure after the witnessed the launch of the year (H1 2015). While the projects that were launched in portion of these launches were in subdued real estate sentiments number of new launches continued the peripheral locations. Besides, the distant peripheral locations of the most number of that had impinged upon the city to fall in H2 2015 compared to positive sentiment in the IT/ in South Bengaluru, such as since H2 2014, developers have residential units priced H2 2014, the rate of decline was ITeS sector seems to have led Chandapura, Akshaya Nagar, become cautious regarding their restrained at 26%, compared to to the resurgence of residential Electronics City, Begur and Hosa above the ticket size of projects, thereby restricting their the steep fall it had witnessed in development in this region. Road. The expectation of better number of launches. connectivity, arising from the `20 mn H1 2015. • North Bengaluru, which had planned Bangalore Metro rail in • On a positive note, an uptick was witnessed the highest number of • Significantly, 2015 witnessed its second phase, has resulted observed in both new launches new launches in H2 2014 and H1 the lowest number of launches in these southern peripheral and sales in H2 2015 compared H1 2015, saw a restricted number of in 5 years, to the tune of 33% as locations coming up as promising 2015. We expect the market to pick launches in H2 2015. However, the compared to 2014. budget destinations. up again in the next six months, region exudes optimism regarding • The city’s sales volume, on the owing mainly to the large quantum the housing demand in the • By contrast, North Bengaluru other hand, remained steady. of office space transacted in the forthcoming period, owing to the witnessed the launch of the most Notwithstanding the decline in city during 2015 as well as the imminent emergence of the office number of residential units priced launches, the market sentiment projected new office absorption sector there. above the ticket size of `20 mn – to regarding sales held relatively firm in H1 2016. We estimate new the tune of around 45%. Notably, • East and West Bengaluru’s shares, and witnessed a marginal dip of launches to increase by 21% in H1 locations such as Hennur Road, which had dipped slightly in the 2% in H2 2015 compared to H2 2016, compared to H1 2015. Thanisandra and Hebbal saw a previous six months, reinstated 2014. number of new launches in the • The sales volume is also expected their growth potential in H2 2015, premium housing segment. • Meanwhile, the weighted average to improve in the next six months, with an increasing trend of new prices continued to scale to the tune of around 28%, on a launches. The presence of the • Approximately 66% of the total upwards at a gradual pace and year-over-year (YOY) basis. Bangalore Metro rail towards West number of new launches in saw an increase of 4% in H2 • On the price front, we expect Bengaluru, operational at several Bengaluru belonged to the ticket 2015 compared to H2 2014. The increased growth in H1 2016 key locations, has increased size of `2.5–7.5 mn, making it the increase in construction costs and compared to H1 2015. The period the location’s attractiveness, segment that witnessed the most the improvement of infrastructure is estimated to witness a 5% and we foresee the number of traction in the city. in select zones of the city have increase in the annual weighted new launches picking up in the primarily been responsible for this average price. forthcoming months.

22 23 INDIA REAL ESTATE RESEARCH

H2 2015 24,190 units H2 2014 32,589 units H1 2015 21,400 units

FIGURE 3 TICKET SIZE SPLIT OF LAUNCHES DURING H2 2015

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

- < `2.5 MN `2.5 - 5 MN `5 - 7.5 MN `7.5 - 10 MN `10-20 MN >-20 MN

CENTRAL EAST WEST NORTH SOUTH

Source: Knight Frank Research

24 25 INDIA REAL ESTATE RESEARCH

MICRO-MARKET-WISE RESIDENTIAL SALES

MICRO-MARKET LOCATIONS H2 2015 Central M.G. Road, Lavelle Road, Langford Town, Vittal Mallya Road, Richmond Road 27,849 units East Whitefield, Old Airport Road, Old Madras Road, K.R. Puram, Marathahalli H2 2014 West Malleswaram, Rajajinagar, Yeshwanthpur, Tumkur Road, Vijayanagar North Hebbal, Bellary Road, Hennur, Jakkur, Yelahanka, Banaswadi 28,445 units Koramangala, Sarjapur Road, Jayanagar, J.P. Nagar, HSR Layout, Kanakapura Road, H1 2015 South Bannerghatta Road 22,234 units FIGURE 4 MICRO-MARKET SPLIT OF RESIDENTIAL SALES

H2 2014 H1 2015 H2 2015 42% 40% 40%39% 35% Despite its smaller market MICRO-MARKET SPLIT OF UNDER-CONSTRUCTION UNITS AS OF DECEMBER 2015 29% 30% 26% size, West Bengaluru 23% 26% 25% 25% 23% witnessed a good growth 20% in sales in H2 2015. The 15% A CENTRAL 0% 10% 10% perception of the region 8% 8% B 5% being an industrial one is WEST 8% 0% 0% 0% C 0 gradually dissipating, with 25% CENTRAL EAST NORTH SOUTH WEST EAST good connectivity through D 23% Source: Knight Frank Research B C NORTH the Bangalore Metro rail E SOUTH 44% • The micro-market split of along the Outer Ring Road and the availability of D A absorption was observed to have and in the Whitefield area have lifestyle projects playing a undergone a few changes in the contributed majorly to the growth past year. While the share of the in this region. key role. E northern and southern regions of • Despite its smaller market size, the city saw a marginal decline West Bengaluru witnessed a good in the sales volume in H2 2015 growth in sales in H2 2015. The Source: Knight Frank Research compared to H2 2014, East and perception of the region being West Bengaluru saw an increase an industrial one is gradually in their share of sales volume in H2 dissipating, with the availability 2015 of lifestyle projects playing a key • South Bengaluru accounts for the cheaper in the peripheral locations • East Bengaluru saw increased role. Good connectivity through major share of the total number in the south, compared to the sales, owing largely to the the Bangalore Metro rail is also of units under construction, to the other micro-markets. employment hubs and social one of the prime factors behind the tune of 44%, given that it has been • The northern and eastern markets infrastructure in place in the region’s progress. witnessing large-scale residential have fairly uniform shares of units region. The IT/ITeS office projects development in the past years. under construction, with West The region is preferred due to its Bengaluru gradually emerging on good social infrastructure and the the residential market scene. presence of employment hubs, leading developers to launch their projects there. Additionally, property prices are relatively

26 27 INDIA REAL ESTATE RESEARCH

PREMIUM RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND PRICE TRENDS BENGALURU MARKET HEALTH

MICRO-MARKET PREMIUM LOCATIONS FIGURE 6 QUARTERS TO SELL (QTS) UNSOLD INVENTORY ANALYSIS Central M.G. Road, Lavelle Road, Langford Town, Vittal Mallya Road, Richmond Road BENGALURU PREMIUM MARKETS 13 East Whitefield, Indiranagar 12 West Malleswaram, Rajajinagar, Yeshwanthpur 11

North Hebbal, Bellary Road 10

South Koramangala, Jayanagar, J.P. Nagar 9 West Bengaluru is

8 currently the best

No. of Quarters 7 performing market of FIGURE 5 PREMIUM MARKET TRENDS 6 the city, with the lowest 5 LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) QTS, signifying that

2,500 8,800 4 DEC-13 MAR-14 JUN-14 DEC-14 MAR-14 JUN-15 SEP-15 DEC-15 the market has been

8,600 witnessing substantial Source: Knight Frank Research 2,000 8,400 FIGURE 5 traction in recent times. MICRO-MARKET-WISE QTS VS AGE OF INVENTORY 1,500 The Bangalore Metro 8,200 CENTRAL EAST WEST NORTH SOUTH 11 rail being operational at

Number of unit s 8,000 1,000

` / sq ft several key locations and 10 The premium market of 7,800 the availability of lifestyle 500 Bengaluru observed a 7,600 9 projects are some of the decline of 16% in new 0 7,400 prime factors behind this 8 launches during H2 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 development. Source: Knight Frank Research 2015 as compared to 7 of inventory in quarters H2 2014. Developers Note: Premium markets include locations where the average ticket size of a residential unit is above ` 20 mn, are in close proximity to the central business district of the city and have Age 6 refrained from launching witnessed new project launches in the preceding three years premium projects in the 5 • The premium market of Bengaluru, period last year. 57698110 11 2 which constitutes locations such face of a subdued market, • Generally, the demand for premium QTS as Lavelle Road, Richmond Road, Source: Knight Frank Research units in Bengaluru has always concentrating, in the Indiranagar and Malleswaram, been lower than in other segments, • The quarters to sell unsold in the city is much higher, at 10.1 among others, observed a decline meantime, on completing as the city is mainly an end-user inventory (QTS) is the number quarters currently. This is mainly of 16% in new launches during market, driven by the IT/ITeS and of quarters required to exhaust due to the relatively slow rate of their earlier projects. H2 2015 as compared to H2 other services sectors, which the existing unsold inventory in absorption in the premium housing 2014. Developers refrained from prefer mid-end residences. the market. The existing unsold segment. launching premium projects in inventory is divided by the average • West Bengaluru is currently the the face of a subdued market, • Not surprisingly, due to the sales velocity of the preceding best performing market of the city, concentrating, in the meantime, on slackening of the premium housing eight quarters in order to arrive at with the lowest QTS, signifying that completing their earlier projects. market, the weighted average the QTS number for that particular price growth YOY in the premium the market has been witnessing • While H2 2015 was characterised quarter. A lower QTS indicates a segment grew at a sluggish pace substantial traction in recent times. by a constricted number of healthier market. in H2 2015, at 2%, as compared to The Bangalore Metro rail being launches in the premium housing H2 2014. • The QTS for Bengaluru has operational at several key locations segment, cautious market been increasing gradually since and the availability of lifestyle sentiments led to a marginal September 2013, and currently projects are some of the prime decline of 1% in demand for such stands at 7.9 quarters. However, factors behind this development. properties, as against the same the QTS for the premium markets However, West Bengaluru still does

28 29 INDIA REAL ESTATE RESEARCH

not have a sufficient inventory and • North Bengaluru shares almost sales volume compared to the the same fate as its southern PRICE MOVEMENT DURING H2 2015 other zones of the city. counterpart regarding the age of inventory, but having evolved • On the other hand, South WEIGHTED AVERAGE PRICE MOVEMENT IN BENGALURU later than the South, it enjoys the Bengaluru is one of the worst advantage of a smaller unsold performing markets, with the inventory size and a lower QTS. LOCATION PRICE RANGE IN H2 2015 (`/SQ FT) 12 MONTH CHANGE 6 MONTH CHANGE largest quantum of unsold Thus, we expect this market to inventory in the city and the gain momentum once the office Bengaluru 4,780 4% 3% highest QTS, indicating that the sector gains prominence in the pace of absorption in the region is near future. Premium markets 8,515 2% -1% considerably slow. • The premium residential market of • Price appreciation across most • The premium housing segment of 1% in the values in H2 2015 in • East Bengaluru has a relatively Central Bengaluru does not have a locations in Bengaluru has been observed a lower rate of growth in premium housing. This decline can lower QTS and age of inventory key role to play due to its minimal rather tepid during the last 12 the weighted average price in the be attributed to the large unsold than the South, thereby having the unsold inventory size. months, ranging between 2–10%. last 12 months, compared to the inventory that has been building potential to perform better in the The growth in price slowed down growth in the city’s overall price. up, owing to the increasing QTS. forthcoming months. further in the last six months, While the city’s overall price growth primarily due to the huge unsold has been pegged at 4%, the inventory present in the market. premium housing segment saw a The range of price appreciation price appreciation of 2%. However, IMPENDING GUIDANCE VALUE INCREASE SETS THE MARKET ABUZZ during the period has been within when compared with the weighted 1–5%. average prices six months prior, The Bengaluru residential real avail of the benefit, post which there Meanwhile, this hike is not expected there has been a slight decline estate market is at the cusp of is a lull in the market, till the market to find favour with the realty witnessing an increase in guidance reconciles to the new values and industry, which is already sitting on PRICE MOVEMENT IN SELECT LOCATIONS value, the reverberations of which transactions pick up. However, this a huge unsold inventory pile-up. The PRICE RANGE IN H2 2015 12 MONTH 6 MONTH may reach far and wide. While in year there has not been any unusual sector has urged the government LOCATION MICRO-MARKET (`/SQ FT) CHANGE CHANGE general parlance guidance value spike in property registrations. While to withdraw the revision owing to Langford Town Central 15,000–21,000 3% 0% refers to the minimum value at the yearly revision can yield income the slackening sales growth, as well Lavelle Road Central 22,000–30,000 0% 0% which a property sale can be for the state, on the other hand, it as the fact that this step will make registered, in essence, guidance is bound to impact property buyers homes unaffordable for buyers. It K.R. Puram East 4,000–6,750 2% 0% value strives to bring about sanity adversely, particularly those from remains to be seen whether the new Whitefield East 4,500–8,500 4% 0% in property values in a market that the mid and low-income segment, guidance values cut ice with the Marathahalli East 4,500–7,100 3% 1% is strife-ridden with cash-strapped as rates are hiked by factoring in the buyers or lead the market to arrive Indiranagar East 9,000–12,500 2% 0% developers and vacillating buyers. amount payable to the government. at an impasse. Yeshwanthpur West 6,500–10,750 8% 1% Malleshwaram West 9,000–13,250 6% 1% According to latest rules, these In 2015, the government had issued values are to be revised on a yearly a set of preliminary notifications, Rajajinagar West 8,500–14,000 2% 0% basis. Till 2011, the government proposing an increase in guidance Tumkur Road West 4,000–5,000 3% 2% used to revise the values once in value the extent of which ranged Yelahanka North 4,500–7,500 4% 4% three or four years. The objective from 10% to 200% in some cases. Hebbal North 5,000–9,800 2% 2% behind putting forth the new annual However, with the slowdown Hennur North 4,500–6,700 10% 5% revision rules is to bridge the huge witnessed in the realty industry, it Thanisandra North 4,000–7,500 5% 0% gap between the market rates and decided to put on hold the revision Sarjapur Road South 4,500–7,200 4% 0% the guidance values. The revision before releasing the values in 2016. Electronics City South 4,000–6,500 2% 0% is usually adjusted to inflation and A relook was taken into the draft Kanakapura Road South 4,300–6,000 0% 0% primarily aims to capture the trends rates and the rates were revised Bannerghatta Road South 4,200–7,200 2% 0% in market transactions in order to further, resulting in some areas arrive at a true value. It has been seeing a marginal reduction while Source: Knight Frank Research observed that typically there is a a few others ended with increased frantic scramble for registrations by rates. buyers before the revision, so as to

30 31 INDIA REAL ESTATE RESEARCH

OUTLOOK FOR THE NEXT SIX MONTHS OFFICE MARKET While H2 2015 has been Projections H1 2015 H1 2016E Growth BENGALURU OFFICE MARKET STOCK, NEW a period of cautious Launches (units) 21,400 25,870 21% COMPLETIONS, ABSORPTION AND VACANCY TRENDS The Bengaluru office revival, with launches and Absorption (units) 22,234 28,367 28% market continued to lead absorption improving over FIGURE 1 Weighted average price (`/sq ft) 4,650 4,890 5% OFFICE SPACE STOCK AND VACANCY LEVELS the way, with the highest H1 2015, we expect the Source: Knight Frank Research STOCK OCCUPIED STOCK VACANCY (RHS) office space absorption in first half of the year 2016 • While H2 2015 has been a period traction due to their proximity to the country. With 5 mn sq 140 12% to remain steady. Market of cautious revival, with launches employment hubs. ft transacted in H2 2015, and absorption improving over H1 120 sentiments are likely to be • South Bengaluru will continue 10% 2015, we expect the first half of the the city recorded a total to witness new launches, but at positive, owing primarily to year 2016 to remain steady. Market 100 locations further away from the 8% absorption of 11.10 mn sentiments are likely to be positive, the large-scale absorption city centre, thereby creating a owing primarily to the large-scale 80 sq ft in the year. Vacancy potential for budget housing in the 6% in the office sector. absorption in the office sector. peripheral locations. mn sq.ft . 60 rates, which have been • The projected new launches and • On the price front, we expect 4% steadily declining over the absorption in H1 2016 will exceed 40 the weighted average price in those of H1 2015 by 21% and 28%, years, continued to remain Bengaluru to increase reasonably, 20 2% respectively, since the decline in by 5% in H1 2016 compared to H1 at 8% in H2 2015. H1 2015 had been quite significant. 2015, on the back of an improved 0 0% Integrated developments in H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E sales volume. locations with good connectivity Source: Knight Frank Research are likely to see good traction in H1 2016. • The Bengaluru office market occupied stock in the country. continued to lead the way, with the • West and North Bengaluru are • Vacancy rates, which have been highest office space absorption expected to witness increased steadily declining over the years in the country. With 5 mn sq ft developer and buyer interest, owing to the consistent absorption transacted in H2 2015, the city chiefly due to infrastructure and relatively restrained new recorded a total absorption of development, while East completions, continued to remain 11.10 mn sq ft during the year. Bengaluru will continue to remain at 8% in H2 2015. a preferred market owing to the • Bengaluru attracted substantial • In the forthcoming months, the job opportunities in the region. occupier interest, the demand office space demand in Bengaluru Locations around the Outer Ring being driven primarily by the IT/ is expected to remain upbeat, Road will witness increased ITeS sector and start-ups, which driven by corporate occupiers resulted in 2015 emerging as the on an expansion mode as well period with the highest absorption as investors, both global and in four years, falling marginally domestic, who are considering short of the absorption in 2011. ownership of their operating Significantly, start-ups accounted assets. for 3.4 mn sq ft of absorption in 2015, including pre-committed • The total absorption during H2 015 deals of 3.2 mn sq ft, compared was 5 mn sq ft, while only 4.5 mn to the 0.5 mn sq ft transacted in sq ft of new office space came 2014. online. • The city witnessed progressive new office space additions during the period, taking the total office stock to 122.5 mn sq ft in H2 2015, while the occupied stock was recorded at 113 mn sq ft, making it the office market with the highest

32 33 INDIA REAL ESTATE RESEARCH

FIGURE 2 denying that e-commerce holds such as Think & Learn inking been an improvement over its NEW COMPLETIONS AND ABSORPTION- ANNUAL great potential as well. Despite office space deals of 116,000 sq share in H2 2014. Big-size deals fewer e-commerce transactions ft while e-commerce transactions by companies such as Mercedes- NEW COMPLETION ABSORPTION in H2 2015, as compared to the in H2 2015 include Flipkart taking Benz and Safran have augmented 7 large-size deals in the previous up 18,000 sq ft of office space in the sector’s share. The IT/ITeS sector, whose six months (H1 2015), developers Koramangala. 6 have recognised that the additional share in absorption had • Meanwhile, a few major demand coming in from the sector 5 transactions were recorded in fairly lessened in the last has had a positive effect on the the manufacturing sector in H2 4 city’s office market. Some of the few quarters, resurged 2015. Although its share of 10% prominent transactions in the other 3 is minimal in the total office space strongly in H2 2015. The services sector include companies mn sq.ft absorption in H2 2015, this has sector accounted for 70% 2

of the total absorption in 1

H2 2015. Despite fewer 0 e-commerce transactions H1 2014 H2 2014 H1 2015 H2 2015 H1 2016E in H2 2015, as compared Source: Knight Frank Research H2 2015 to the large-size deals in SECTOR ANALYSIS 5.00 the previous six months mn sq.ft. ft) and IBM (400,000 sq ft), among (H1 2015), developers • The IT/ITeS sector—the key H2 2014 demand driver of the city’s office others. Significantly, it was the have recognised that the market, whose share in absorption e-commerce sector that stole the 4.40 limelight in the previous six months additional demand coming had fairly lessened in the last few mn. sq.ft. quarters—resurged strongly in in H1 2015, with around 3.2 mn sq H1 2015 in from the sector has had H2 2015. The sector accounted ft of pre-committed deals. for 70% of the total absorption a positive effect on the • The share of the other services 6.07 in H2 2015, as compared to H2 mn sq.ft. sector, of which the e-commerce 2014, which had seen a 53% city’s office market. sector is a part, has dropped from share. This can be attributed to 29% in H2 2014 to 16% in H2 2015. the large-size deals transacted Although the IT/ITeS sector led the by IT majors, such as Accenture way in the share of office space (400,000 sq ft), Infosys (480,000 sq absorption in H2 2015, there is no

FIGURE 3 DEAL SIZE ANALYSIS SECTOR-WISE SPLIT OF ABSORPTION

H2 2014 H1 2015 H2 2015 FIGURE 4 80% AVERAGE DEAL SIZE AND NUMBER OF DEALS 70% 70% AVERAGE DEAL SIZE (SQ.FT.) NUMBER OF DEALS (RHS)

60% 53% 90,000 120 50% 50% 80,000 70,000 40% 36% 60,000 80 30% 29% 50,000

sq.ft 40,000 20% 16%

30,000 40 Number of deals 13% 11% 10% 10% 20,000 3% 4% 4% 10,000 0 IT/ITeS BFSI* MANUFACTURING OTHER SERVICES 0 0 H1 2014 H2 2014 H1 2015 H2 2015 Source: Knight Frank Research Source: Knight Frank Research Note: BFSI includes BFSI support services

34 35 INDIA REAL ESTATE RESEARCH

SELECT TRANSACTIONS

OCCUPIER BUILDING LOCATION APPROX. AREA (SQ FT)

Metric Stream AMR Tech Park Hosur Road 90000

Citrix Embassy GolfLinks business park Intermediate Ring Road 145000

Resource Pro Karle Town Center Hebbal Outer Ring Road 86000

Mercedes-Benz Gopalan Global Axis Whitefield 140000

HSBC RMZ Futura 2 Bannerghatta Road 140000

Tech Mahindra Golden Hill Supreme IT park Electronics City 160000

Cadence RMZ Ecoworld Sarjapur Outer Ring Road 200000

IBM Bhartiya City Thanisandra Road 400000

Think & Learn IBC Knowledge Park Bannerghatta Road 116000

Source: Knight Frank Research • The average deal size has lesser number of deals indicated increased significantly in H2 2015, a dearth of large, ready office coming close to 80,180 sq ft, configurations in the market. while it stood at 55,430 sq ft in H2 • The drop in deal sizes also justifies 2014 and 54,250 sq ft in H1 2015. the slightly lower quantum of However, the number of deals has absorption in H2 2015 (5 mn sq reduced in the last six months, ft) as against the absorption in H1 from 112 in H1 2015 to 88 in H2 2015 (6.07 mn sq ft). 2015. • This denotes that while deals with bigger ticket sizes were inked in H2 2015 over the other periods, the

BUSINESS DISTRICT ANALYSIS

BUSINESS DISTRICT CLASSIFICATION

BUSINESS DISTRICTS MICRO-MARKETS

M.G. Road, Residency Road, Cunningham Road, Lavelle Road, Richmond Central Business District (CBD) and off-CBD Road, Infantry Road

Suburban business district (SBD) Indiranagar, Koramangala, Old Airport Road, Old Madras Road

Peripheral Business District (PBD) East Whitefield Peripheral Business District (PBD) South Electronics City, Bannerghatta Road Peripheral Business District (PBD) North Thanisandra, Yelahanka, Devanahalli Outer Ring Road (ORR) Hebbal ORR, Marathahalli ORR, Sarjapur Road ORR

36 37 INDIA REAL ESTATE RESEARCH

peripheral region accounted for a share in the city’s absorption in the 2014. FIGURE 5 The Outer Ring Road 10% share of the total absorption near future. BUSINESS DISTRICT-WISE ABSORPTION SPLIT • On the other hand, office projects in H2 2015, owing to large-size (ORR) office market saw • Meanwhile, the SBD office markets in the CBD and the peripheral H2 2014 H2 2015 deals by companies such as at locations such as Koramangala business districts towards the east 59% a considerable dip in IBM and Sutherland. With the 60% and Intermediate Ring Road have remained relatively subdued, with quantum of office space expected H2 2015 compared to been regaining occupier interest the majority of the traction taking 50% to be completed in the next few as well. The region saw its share place in the ORR, PBD South and H2 2014. Progressive quarters, the northern peripheral increase to 14% in H2 2015, from SBD markets. 40% office markets portend a greater 33% 31% absorption YOY has led 9% of the total absorption in H2 30% 24% the ready-to-occupy 20% office space in the region BENGALURU OCCUPIES THE TOP SPOT FOR START-UPS IN THE COUNTRY 14% 10% 10% 9% to shrink significantly. 6% Bengaluru, proclaimed in recent support. Another important factor which aims at having 10,000 start- 3% 6% 4% 1% 0% 0% This has resulted in years as the Silicon Valley of India, working in favour of Bengaluru is ups by 2023, and the New Age 0 CBD & Off SBD ORR PBD PBD PBD PBD PBD South markets is ready to be anointed with another its huge quality skill base. It has Incubators to promote student CBD EAST SOUTH NORTH WEST tech-related sobriquet – that of a vast talent pool of technology start-ups. The government provides Source: Knight Frank Research such as Hosur Road, the start-up capital of the country. experts, constituting of people who incubators along with Nasscom, • The Outer Ring Road (ORR) office in the forthcoming months. Bannerghatta Road and More specifically, the unicorn work for global giants like IBM, Microsoft and a number of other market saw a considerable dip in • With ready office space becoming Electronics City to account capital of India. Unicorn is a term Microsoft, HP, Dell, Infosys and companies that encourage start- H2 2015 compared to H2 2014. scarce in the preferred markets, that has been made popular by Wipro to name a few, as well as the ups within their campus. Moreover, Its share in the total absorption for increased traction H2 2015 saw the PBD South venture investor Aileen Lee to captive technology development most major software companies in H2 2015 was 33% compared markets resurfacing. Peripheral in H2 2015. Another describe start-ups valued at a centres of large corporate giants have their research centres in to 59% in H2 2014. The ORR has office markets in the south, such $1 billion or more. The city has like GE, Samsung, Fidelity and Bengaluru. These MNCs help in been progressively preferred by notable observation is the as Hosur Road, Bannerghatta accelerating the start-ups either corporates due to factors such leveraged its imposing IT services others. Bengaluru thrived on an Road and Electronics City, saw emergence of the PBD as its proximity to the CBD and legacy to establish itself as the tech ecosystem that developed and through mentorship or funding the increased traction and occupier the major residential markets, North market, primarily entrepreneurial hub of the nation, supported talent, connected with entrepreneurs. Most importantly, the interest, thereby taking up the access to large talent pools, the and currently boasts of housing five investors and followed lessons city offers relatively lower rentals for region’s share from a mere 4% comprising the office availability of contiguous land of the eight homegrown unicorns from other start-ups. These factors office space, thereby encouraging in H2 2014 to 31% in H2 2015. parcels, connectivity to the airport market in Thanisandra. – Flipkart, Ola, InMobi, Quikr and provided the start-ups with an early- companies to set up their offices Key transactions in PBD South and the presence of hotel and include those by Infosys and Tech MuSigma. Other three unicorn mover advantage, thereby leading here. retail projects. This has led the Mahindra at Electronics City, SAP Indian companies, viz. Snapdeal, Bengaluru to observe more start- ready-to-occupy office space in While start-ups have a long way to and Medi Assist on Bannerghatta Zomato and mobile wallet start-up ups than the other cities in India. the region to shrink significantly, go, re-structuring their processes Road, and MetricStream on Hosur Paytm, are based in New Delhi. thereby resulting in a decline Besides, the government along the way to arrive at correct Road. in its absorption share in H2 A number of factors played in favour of Karnataka’s Department positionings, Bengaluru would 2015. However, the ORR still • Another notable observation is of Bengaluru to be chosen as the of Information Technology, continue to provide a nurturing accounts for a large quantum of the emergence of the PBD North destination of choice of these start- Biotechnology and Science & environment for these companies pre-committed space, which is market, primarily comprising the ups. For one, the city’s tech-first Technology has offered tremendous to succeed and, in all likelihood, scheduled to become operational office market in Thanisandra. This culture lent the confidence required support with its numerous remain the start-up capital of India. to embark on a business journey initiatives, instances of this are that entailed significant technical the 10,000 start-ups initiative,

H2 2015 RENTAL TREND

5.00 • The SBD and ORR office markets witnessed an increase of 6%, from • This could be accredited to the mn sq.ft. witnessed the maximum rise in `48.5 / sq ft /month in H2 2014 to anticipated demand for large H2 2014 rentals during H2 2015, owing `51.5 / sq ft / month in H2 2015. spaces as well as the lack of primarily to the strong demand vacant office stock, which have • Going forward, the weighted for office space in the region, pushed the weighted average 4.40 average rentals are expected to mn. sq.ft. coupled with declining vacancies, rentals upwards in the Bengaluru increase by 7% from the current particularly in the ORR. office space market values in H2 2015 to around `55 / • The weighted average rental values sq ft / month in H1 2016.

38 39 INDIA REAL ESTATE RESEARCH

FIGURE 6 WEIGHTED AVERAGE RENTAL MOVEMENT

40 INR / sq.ft./month Yashwin Bangera Assistant Vice President - Research 35

30 H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016E Source: Knight Frank Research CHENNAI BUSINESS DISTRICT-WISE RENTAL MOVEMENT

RENTAL VALUE RANGE IN H2 2015 6 MONTH BUSINESS DISTRICT 12 MONTH CHANGE (`/SQ FT/MONTH) CHANGE CBD & Off-CBD 75–95 6% 5% SBD 50–90 10% 8% PBD East 31–47 4% 0% PBD South 31–48 5% 4% ORR 45–70 10% 7% Source: Knight Frank Research OUTLOOK FOR THE NEXT SIX MONTHS

PROJECTIONS H1 2015 H1 2016E GROWTH

New supply (mn sq ft) 4.00 5.5 38% Absorption (mn sq ft) 6.07 6 -1% Vacancy (%) 10% 7% Weighted average rental (` / sq ft / month) 50.0 55 10% Source: Knight Frank Research • Going forward, in the first half of quantum of new completions increase by 10% in H1 2016 on a 2016 (H1 2016), the Bengaluru compared to H1 2015, it remains to YOY basis. office market will continue to see be seen if this would be sufficient • The e-commerce sector, which the momentum that was witnessed to cater to the city’s office space barely existed two years ago, has in 2015. The absorption in H1 2016 demand. been gaining ground quickly in is expected to remain steady, • As a result of the space crunch the Indian business scenario and albeit with a slight decline of 1% brought about by the steady holds much potential to become over the absorption in H1 2015. absorption rate and declining one of key demand drivers of the This marginal de-growth could vacancy levels, the rental values of city’s office market, along with the be accredited to the dearth of select projects at locations such IT/ITeS sector. However, being in substantial ready-to-occupy office as the ORR and the SBD office its nascent stage, it remains to space in graded projects in key markets are likely to increase in the be seen how well the sector can office markets. While H1 2016 short term. The weighted average sustain itself in the long run. is projected to witness a larger rentals of the city are estimated to

40 41 INDIA REAL ESTATE RESEARCH

RESIDENTIAL MARKET MICRO-MARKET SPLIT OF RESIDENTIAL LAUNCHES

CHENNAI RESIDENTIAL MARKET LAUNCHES, FIGURE 2 ABSORPTION AND PRICE TRENDS MICRO-MARKET SPLIT OF LAUNCHED UNITS The South and the West H2 2014 H1 2015 H2 2015 micro-markets were the FIGURE 1 70% CHENNAI MARKET TRENDS 63% hardest hit in H2 2015, 60% H2 2015 saw a sharp 20% LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) as they experienced the 50% 50% 44% decline in the number of 12,000 4,700 worst of the floods. These 4,650 40% units launched compared 10,000 35% micro-markets usually 4,600 30% 30% to the same period last 8,000 4,550 22% 24% attract over 90% of the 4,500 20% 15%

year. This was largely due 6,000 ` / sq ft development in Chennai, 4,450 10% 10% 5% to the torrential rains that 4,000 4,400 but H2 2015 saw this 2% 0% 4,350

Number of unit s 0 brought the residential real 2,000 share come down to 80% 4,300 CENTRAL NORTH SOUTH WEST estate market to almost a 0 4,250 Source: Knight Frank Research H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E standstill. Source: Knight Frank Research

• Absorption levels in the Chennai • Weighted average prices have • The South and the West micro- residential locations of Pallavaram, High Road and Ambattur. residential market have stagnated been growing, but at a steadily markets were the hardest hit in Perumbakkam and Kelambakkam, Thiruverkadu, Sriperumbudur since H2 2013, as a lacklustre declining rate since H2 2012, when H2 2015, as they experienced the which usually see development and Avadi witnessed most of the economic outlook, escalating they grew at 10.4%, and now stand worst of the floods. These micro- interest, experienced muted development interest in West prices and the heavy November at 1.5% YOY at the end of H2 2015. markets usually attract over 90% activity due to the floods. Chennai during this period. rains discouraged the price- of the development in Chennai, • We do not expect the ongoing • Comprising close to a third of • West Chennai saw close to 59% of conscious homebuyer from but H2 2015 saw this share come lull in launches to persist in the units launched during H2 the launches occur in ticket sizes entering the market. down to 80%. H1 2016, as the festive season 2015, the West zone is second under `5 mn compared to 53% for • Absorption levels averaged close during the first half of the year • South Chennai still accounted only to the South, as developers the entire market. In comparison, to 14,000 units every half-yearly has traditionally seen developers for half of the units launched cater to the increasing number approximately 51% of the units in period before H2 2013 but now launch new projects. during the period and saw the of homebuyers looking for South Chennai were launched in average just under 10,000 units, bulk of these launches take comparatively affordable options the same ticket size. • However, YOY growth will with H2 2015 seeing the lowest place in locations beyond away from the city centre but be hampered, as the market absorption levels since 2011, at Navalur and Padur on the OMR. closer to the employment sentiment is yet to recover from 8,792 units. This was a 15% drop The relatively more established hubs on Mount-Poonamallee the aftermath of the floods. We compared to H2 2014. expect H1 2016 to see 8,500 units • The developers, in turn, reduced in terms of supply – approximately the pace of their launches in the 7% lower YOY. face of mounting inventories as • We believe that the absorption H2 2015 demand continued to trend lower. levels will recover from the current • H2 2015 saw a sharp 20% decline lows and reach approximately 5,854 in the number of units launched 9,000 units in the following period H2 2014 units compared to the same period last – marginally lower than the level year. This was largely due to the achieved in H1 2015. 7,318 torrential rains that brought the • This contraction in supply, coupled units residential real estate market to H1 2015 with a recovery in the absorption almost a standstill. levels, will support market health • However, this excessive reduction and set the stage for a more robust 9,102 units in supply in comparison to the recovery. absorption levels has also caused the unsold inventory level to fall to a three-year low, at 36,497 units.

42 43 INDIA REAL ESTATE RESEARCH

FIGURE 3 TICKET-SIZE SPLIT OF LAUNCHES DURING H2 2015

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

- < `2.5 MN `2.5 - 5 MN `5 - 7.5 MN `7.5 - 10 MN `10-20 MN >-20 MN

CENTRAL NORTH SOUTH WEST

Source: Knight Frank Research

MICRO-MARKET-WISE RESIDENTIAL SALES MICRO-MARKETS OF CHENNAI

MICRO-MARKET LOCATIONS

Central Chennai T. Nagar, Alandur, Nungambakkam, Kodambakkam, Adyar, Kilpauk

West Chennai Porur, Ambattur, Mogappair, Iyyappanthangal, Sriperumbudur

South Chennai Perumbakkam, Chrompet, Sholinganallur, Guduvancheri, Kelambakkam North Chennai Tondiarpet, Kolathur, Madhavaram, Perambur

FIGURE 4 MICRO-MARKET-WISE RESIDENTIAL SALES

H2 2014 H1 2015 H2 2015 68% 70% 65% 59% 60%

50%

40% 32% 30% 26%26%

20%

10% 7% 10% 0% 3% 2% 2% 0 CENTRAL NORTH SOUTH WEST

Source: Knight Frank Research

44 45 INDIA REAL ESTATE RESEARCH

H2 2015 GROWTH CORRIDORS IN CHENNAI 8,792 Chennai’s residential real estate and will be the biggest drivers of the southern locations to central and H2 2014 units market has been experiencing a Chennai real estate market in times west Chennai, do not provide direct slowdown, as the overall demand to come. connectivity to the bulk of the and supply numbers have major office locations in the south 10,343 The Chennai office space market units fallen consistently since 2012. and southwest. This requires daily H1 2015 has expanded towards the south Consequently, price growth has also commuters to rely largely on road and southwest over the years, and stagnated, rendering the investment transport to get to their places of 9,091 bulk of the office space today is climate less than optimum for fresh work. units concentrated in these zones. The real estate investments. However, OMR stretch, especially, has seen These hurdles in commuting to as in the case of the equity markets, prodigious growth over the past work have encouraged homebuyers when certain blue chip companies decade, as quality office spaces to look for residential options will continue to attract interest even • Buyer behaviour has been largely in traction due to an increased affordable locations in the West, tailor-made for the IT/ITeS and other closer to office locations, and have in a downturn, some locations or consistent across the last three uptake of the lower-priced such as Tiruverkadu, caused services sectors have come up, and caused the proliferation of a healthy zones with the right fundamentals periods, with an inevitable dip in inventory and good connectivity demand to increase 4% YOY in this stretch currently houses over residential market in proximity to demand in South Chennai due to with SBD locations, such as Mount that zone. in place will outperform and yield half of the office stock in the city. these office hubs. As the residential the floods. Poonamallee High Road and above average investment returns • Landmark Construction, Doshi The state government’s initiative units coming up in these locations Valasaravakkam. over the long term. • Buyers responded favourably Housing, Emami Realty, Vijay Raja to promote the stretch as an IT are also lower priced compared to to the increasing and lower- • Demand shrank by 15% YOY in Group and Godrej Properties were Employment generation and corridor, coupled with affordable other residential zones in the city, priced supply in the West zone. H2 2015. The South zone saw the most active during this period the infrastructure that connects rentals, will ensure the growth of Western micro-markets, such a 23% decline, while increased and contributed to over half of the they are an attractive proposition for as Tiruverkadu, saw an increase homebuyer interest in the more units launched during H2 2015. employment hubs to residential this corridor in the foreseeable the resident workforce. Residential areas are the cornerstones for future as well. locations comparatively closer the development and growth to these office hubs that have As the southern end of the Chennai MICRO-MARKET SPLIT OF UNDER-CONSTRUCTION UNITS AS OF DECEMBER 2015 of any residential location. sufficient supply constraints will see office space market has thrived Chennai has always had a strong better price performance compared on the IT/ITeS sector’s demand for Source: Knight Frank Research manufacturing base, but the new to the market. Thus residential large format office spaces, the SBD millennium ushered in an era of locations such as Alandur and locations have attracted corporate IT/ITeS development after Old Guindy are more likely to see A offices and other front offices that CENTRAL 5% Mahabalipuram Road (OMR) was above average price appreciation. can afford comparatively higher B promoted as an IT corridor, and the In addition to being connected to NORTH 4% rentals and prefer being closer to IT/ITeS and other services sectors major employment hubs via road, C the city centre. These dynamics 27% (ecommerce, healthcare, etc.) metro and MRTS routes, they also WEST are expected to sustain over time B C D are the largest employers in the have sufficient supply constraints SOUTH 65% and close to 80% of the IT/ITeS and city today. The IT/ITeS and other in place to give residential prices A D other services sectors’ workforce services sectors currently account sufficient room to grow. will continue to commute to these for a massive 80% of the office office hubs during the same period. stock in Chennai. The availability • Nearly 92% of the under- developers to shun this part of of a vast talent pool, favourable The city faces sizeable challenges construction units in Chennai are the city and focus their energy on state government policies and in terms of transport infrastructure, concentrated in the South and more viable locations in West and which are being addressed by West micro-markets of the city. South Chennai. an improvement in the overall economic landscape will ensure a initiatives such as the ongoing • Comparatively poor connectivity • The shortage of developable land sustained growth in the IT/ITeS and construction of the metro and to office market locations and and high prices prevent sizeable near completion of the outer ring the lack of social infrastructure development activity in Central other services sectors. This will also has left very little incentive for Chennai, but it remains the most ensure that these sectors will be the road (ORR). These initiatives, while the Chennai homebuyer to look sought-after residential micro- largest consumers of office space significant in terms of connecting north for homes. This has caused market of the city.

46 47 INDIA REAL ESTATE RESEARCH

• The quarters to sell unsold PREMIUM RESIDENTIAL MARKET LAUNCHES, inventory (QTS) is the number Chennai market health Prices in this segment ABSORPTION AND PRICE TRENDS of quarters required to exhaust the existing unsold inventory in PREMIUM MARKET FIGURE 6 have increased 42% since the market. The existing unsold QUARTERS TO SELL (QTS) UNSOLD INVENTORY ANALYSIS inventory is divided by the average H1 2013, compared to MICRO-MARKET LOCATIONS sales velocity of the preceding CHENNAI PREMIUM MARKETS the overall residential Nungambakkam, R. A. Puram, Alwarpet, T. Nagar, eight quarters in order to arrive at 10 market, which, at 9%, has Central Chennai Mylapore, Royapettah, Kilpauk, Anna Nagar, the QTS number for that particular 9 Teynampet, Adyar quarter. A lower QTS indicates a 8 not performed even half healthier market. 7 West Chennai K. K. Nagar, Thiruvanmiyur, Valasaravakkam as well during the same • The Chennai residential market 6 currently has a QTS of 7.6, with period South Chennai Injambakkam, Palavakkam, Uthandi 5 an average age of inventory of 4 10.7 quarters. The QTS has been No. of Quarters FIGURE 5 inching down since the beginning 3 PREMIUM MARKET TRENDS of 2015, which signifies an 2

LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) improvement in the overall market 1 health. 450 16,000 0 DEC-13 MAR-14 JUN-14 DEC-14 MAR-14 JUN-15 SEP-15 DEC-15 400 14,000 • A spurt in the absorption levels, 350 coupled with depressed launches, Source: Knight Frank Research 12,000 300 has pulled the QTS and age of 250 10,000 inventory of the Cental zone to 7 FIGURE 7

` / sq ft MICRO-MARKET-WISE QTS VS AGE OF INVENTORY 200 8,000 quarters – well below that of the 150 overall market. 6,000 100 CENTRAL WEST NORTH SOUTH

Number of unit s • South and West Chennai contain 4,000 50 the largest chunks of unsold 13 0 2,000 inventory in the Chennai market 12 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 and have a QTS of 7 and 8

Source: Knight Frank Research quarters respectively. Relatively 11 Note: Premium markets include locations where the average ticket size of a residential unit affordable residential prices, is above `15 mn, are in close proximity to the central business district of the city and have proximity to employment hubs 10 witnessed new project launches in the preceding three years and improving social infrastructure 9 continue to drive both these micro- • The premium locations of the bungalows in central locations, the markets. city are concentrated largely in breakdown of joint families among 8 Central Chennai areas, such as the affluent and the dearth of • North Chennai is the worst- 7

Nungambakkam, Adyar and R. lifestyle residential products have performing micro-market, with a Age of unsold inventory in quarters A. Puram, and some locations been strong drivers of the premium QTS and age of inventory of nearly 6 with a high aspirational value in segment. 11 quarters, though its QTS has South and West Chennai, such been reducing over the last three 5 • Prices in this segment have as Palavakkam, Injambakkam, analysis periods. 5678910 11 12 13 increased 42% since H1 2013, Thiruvanmiyur and K. K. Nagar. QTS compared to the overall residential Source: Knight Frank Research • The premium market in Chennai market, which, at 9%, has not performed even half as well during has been better insulated against PRICE MOVEMENT DURING H2 2015 market vagaries compared to the the same period. overall Chennai residential market, • Absorption levels that averaged as there was relatively little supply WEIGHTED AVERAGE PRICE MOVEMENT IN CHENNAI almost 800 units on a half-yearly in the early years of this decade basis in the six periods prior to compared to the situation today. 2013 have dropped nearly 55% LOCATION PRICE RANGE IN H2 2015 (`/SQ FT) 12 MONTH CHANGE 6 MONTH CHANGE • The Chennai market had a to the 350 levels since then. This significantly higher appetite for has pushed the QTS level of the Chennai 4,596 1.5% 1% premium residential products premium segment over that of the compared to the supply on offer. Chennai residential market since Premium markets 14,474 7% 6% The increasing redevelopment of June 2015.

48 49 INDIA REAL ESTATE RESEARCH

• The drop in market traction during aftermath of the damage caused completion, has helped these the latter part of H2 2015 weighed by the floods. This phenomenon central locations register a price OUTLOOK FOR THE NEXT SIX MONTHS down the price growth in the was especially exacerbated in growth in the range of 3–5% YOY. The consistent decline in Chennai residential market during the secondary market, where Projections H1 2015 H1 2016E GROWTH • We expect the weighted average H2 2015. Growing at just 1.5% YOY opportunistic buyers were seen unsold under-construction prices in Chennai to grow at a Launches (units) 9,102 8,500 -7% during this period, the price growth looking for big discounts in a significant 3% YOY in H1 2016, inventory levels and steady has stagnated, compared to the market full of panic-stricken as the shock of the recent floods Absorption (units) 9,091 9,000 -1% 4% YOY growth seen during the sellers. QTS levels since H1 2015 blows over and homebuyers start previous period. Weighted average price (`/sq ft) 4,532 4,662 2.9% • Developers were also seen to come back to the market during lead us to believe that Source: Knight Frank Research • South Chennai bore the brunt pursue aggressive subvention the festive season. the Chennai market is of the floods and also took the schemes to push sales. • We believe that the price growth in • Chennai city is currently • The revival in the manufacturing hardest hit in terms of real estate • Central locations in Chennai, the premium segment locations will undergoing a prolonged phase of and IT/ITeS sectors that make bottoming out and close price growth, with locations such such as Anna Nagar, T. Nagar continue to outperform the market time correction, characterised by up the bedrock of Chennai’s to a point of recovery in as Guindy and Ekkaduthangal— and Adyar, continue to remain the and match the current analysis a persistent slump in launches and economy, coupled with reducing which are located within a 1–2 km most premium locations of the period’s 9% growth in H1 2016 as absorption levels, wherein market interest rates and inflation levels in sales numbers radius of the Adyar river—seeing city. Relatively strong absorption well. players are wary about entering the national economy, makes for a prices stagnate completely in H2 during H2 2015, brought on by the market at this time. strong case for the business and 2015 as end user and investor investment climate to improve and the fact that most of the under- • Our interactions with the sentiments took a beating in the to boost the overall sentiment. construction inventory was nearing developer and investor community corroborate our analysis and • These factors instil confidence that PRICE MOVEMENT IN SELECT LOCATIONS lead us to believe that the recent the residential market is slowly but slump in the Chennai residential surely on its way to recovery in the PRICE RANGE IN H1 2015 12 MONTH 6 MONTH market was accentuated by the coming 12 months. LOCATION MICRO-MARKET (`/SQ FT) CHANGE CHANGE floods, and that this situation will • We believe that South Chennai will ease in the months to come. While Anna Nagar Central 10,500–11,900 3% 1% continue to grow, as connectivity residential supply will take some to employment hubs such as Adyar Central 16,500–17,800 1% 1% more time to revive due to the still the OMR, improving social high unsold inventory levels, we Kilpauk Central 14,800–15,800 4% 0% infrastructure and comparatively believe that H1 2016 will see a 7% lower prices will deter homebuyers T. Nagar Central 18,000–19,300 4% 1% de-growth YOY compared to the from looking elsewhere. 20% fall YOY in H1 2015. Alandur Central 7,000–7,500 3% 2% • The premium market has been • We believe that the absorption Porur West 5,200–5,500 3% 2% under increasing pressure, as is levels, however, will prove to be seen in its rising QTS; however, the Ambattur West 4,100–4,600 2% 1% much stronger and match the H1 above-average price growth and 2015 levels in the next period. Mogappair West 6,200–6,700 2% 2% the small number of units relative • We expect the weighted average to its specific demand base lead Iyyappanthangal West 4,000–4,500 2% 2% price in Chennai to increase at a us to believe that the price growth Sriperumbudur West 2,700–3,200 2% 1% healthier rate, by close to 3% in in this segment will continue to Perumbakkam South 4,100–4,500 1% 0% H1 2016 compared to H1 2015, be strong, though slightly muted on the back of the improved sales compared to earlier periods. Chrompet South 4,200–4,700 2% 0% volume. Price growth will continue • The effects of a steadily-improving to be capped until the absorption Sholinganallur South 4,500–5,500 2% 1% office market, thanks to improving volumes start approaching the fundamentals in the IT/ITeS and Guduvancheri South 3,200–3,700 1% 0% 14,000-unit average per six- manufacturing sectors, are bound month period that the Chennai Kelambakkam South 3,500–3,900 0% 0% to rub off on the residential market market had clocked prior to 2013, as well. Hence, locations such Tondiarpet North 4,500–4,800 2% 2% compared to the sub-10,000 units as Pallikaranai, Medavakkam, averaged by the market since then. Kolathur North 4,800–5,500 2% 1% Perumbakkam and locations on Madhavaram North 4,500–5,000 2% 0% • The consistent decline in unsold the Pallavaram–Thoraipakkam under-construction inventory levels road that are well connected to IT/ Perambur North 6,200–6,500 2% 3% and steady QTS levels since H1 ITeS office hubs on the OMR with 2015 lead us to believe that the improving social infrastructure are Chennai market is bottoming out expected to see increasing market and close to a point of recovery in activity in the coming months. sales numbers.

50 51 INDIA REAL ESTATE RESEARCH

• The total office space absorption FIGURE 2 in H2 2015 was 3.1 mn sq ft, while OFFICE MARKET NEW COMPLETIONS AND ABSORPTION Up almost 41% YoY, H2 only 1.2 mn sq ft of new office CHENNAI OFFICE MARKET STOCK, NEW COMPLETIONS, space came online. NEW COMPLETION ABSORPTION 2015 experienced the 4.0 ABSORPTION AND VACANCY TRENDS • The adjoining chart depicts the highest absorption levels stabilising absorption levels, 3.5 FIGURE 1 coupled with the falling trend in 3.1 of any half-yearly period in 3.0 OFFICE SPACE STOCK AND VACANCY LEVELS supply since H2 2013. However, 2.4 the current period saw a rise in 2.5 the history of the Chennai 2.2 STOCK OCCUPIED STOCK VACANCY (RHS) 2.0 office space market completions, which is heartening 2.0 1.8

in a market starved of new, high- mn sq.ft 1.5 70 25% 1.5 1.4 quality office projects. 1.1 1.2 1.0 0.9 60 20% 0.5 50 0 15% H2 2014 H1 2015 H2 2015 H1 2016E 40 H1 2014

Source: Knight Frank Research

mn sq.ft . 30 10%

20 5% SECTOR ANALYSIS 10 FIGURE 3 0 0% SECTOR-WISE SPLIT OF ABSORPTION H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E H2 2014 H1 2015 H2 2015 Source: Knight Frank Research 70% • The Chennai office space market online – a substantial 58% drop 60% moved from strength to strength from the 11.1 mn sq ft delivered 54%

as demand rose for the third during the previous reference 50% 46% consecutive year. period. 40% 36% • 2015 recorded 5.1 mn sq ft of • By contrast, the same period 30% absorption, 28% higher than the 4 saw a 34% increase in the total 26% 27% mn sq ft absorbed in 2014. On the absorption levels, highlighting the 19% 20% 18% 16% other hand, 2015 witnessed 2.1 mn underlying strength of the market. 14% 15%15% 13% 10% sq ft of office space come online, • The improvement in global compared to 2.6 mn sq ft in the sentiment, especially in the 0 previous year. BFSI* IT/ITeS MANUFACTURING OTHER SERVICES US—a major market for Indian • Spiralling absorption numbers, IT/ITeS companies—along with Source: Knight Frank Research coupled with falling supply, has the relatively stable domestic Note: BFSI includes BFSI Support Services pushed down vacancy levels from economy, has bolstered the 24% in 2013 to 15% at the end of recovery of the Indian IT/ITeS 2015. sector, which is the mainstay of the Chennai office space market. • Up almost 41% YoY, H2 2015 H2 2015 This momentum is expected to experienced the highest continue in the following period as absorption levels of any half-yearly 3.1 well. period in the history of the Chennai H2 2014 mn sq.ft. office space market on the back of big-ticket transactions by Yes 2.2 Bank, AstraZeneca, Sutherland mn. sq.ft. and Ericsson, among others. H1 2015 • The fall in vacancy levels 2.3 accelerated after 2013, as the mn sq.ft. following two years saw just 4.7 mn sq ft of office space come

52 53 INDIA REAL ESTATE RESEARCH

• The Chennai office market has services and accounted for some active IT/ITeS companies in H2 traditionally been anchored by of the largest transactions in H2 2015. BUSINESS DISTRICT ANALYSIS the IT/ITeS sector, but recent 2015. • The shares of the manufacturing periods—especially the last 18 BUSINESS DISTRICT CLASSIFICATION • The IT/ITeS sector continues to and other services sectors have months—have seen the BFSI be the largest consumer in the been declining since H1 2014, but BUSINESS DISTRICTS MICRO-MARKETS sector also gaining in market Chennai office space market gained in the recently-concluded share. despite losing market share over period, as companies such as Anna Salai, RK Salai, Nungambakkam, Greams Road, Central business district (CBD and off-CBD) • The BFSI sector has nearly the past three periods. The sector AstraZeneca, Ford, Ericsson and Egmore, T. Nagar doubled its market share YoY, as accounted for 1.1 mn sq ft of Access Healthcare took up large industry majors such as Yes Bank office space absorption during H2 office spaces in the city. Suburban business district (SBD) Mount-Poonamallee Road, Porur, Guindy, Nandanam and the World Bank took up large 2015. Accenture Sutherland and office spaces for their support Freshdesk were among the most SBD – Old Mahabalipuram Road (OMR) Perungudi, Taramani

DEAL SIZE ANALYSIS Peripheral business district (PBD) – OMR and Grand Southern OMR beyond Perungudi Toll Plaza, GST Road Trunk road (GST) FIGURE 4 • Deal sizes averaged close to AVERAGE DEAL SIZE AND NUMBER OF DEALS 25,000 units in 2014, and have PBD – Ambattur Ambattur grown nearly 40% to almost AVERAGE DEAL SIZE (SQ.FT.) NUMBER OF DEALS (RHS) 35,000 units in 2015. This bodes

40,000 100 well for the market and could 35,000 90 herald a more sustained recovery in 2016. 30,000 80 70 25,000 • The increase in the average 60 deal size, strong absorption and 20,000 50 sq.ft an increase in the number of 15,000 40

Number of deals transactions since 2014 clearly 30 10,000 20 indicate an overall improvement in 5,000 10 occupier interest in the Chennai 0 0 office space market. H1 2014 H2 2014 H1 2015 H2 2015 • The increase in big-ticket Source: Knight Frank Research transactions has a major role to play in the spike seen in the average deal size.

SELECT TRANSACTIONS

BUILDING OCCUPIER LOCATION APPROX. AREA (SQ FT)

One Indiabulls Park Yes Bank Ambattur 700,000 Shriram IT Gateway Accenture Perungulathur 225,000 Chennai One Astra Zeneca Thoraipakkam 150,000 Shriram IT Gateway Sutherland Perungulathur 125,000 SP Infocity Ericsson Kandanchavadi 120,000 Futura Tech Park Scope International Sholinganallur 90,000 One Indiabulls Park Access Healthcare Ambattur 75,000 SP Infocity Freshdesk Perungudi 68,000 SP Infocity Ford Perungudi 63,000 SP Infocity World Bank Perungudi 63,000

54 55 INDIA REAL ESTATE RESEARCH

FIGURE 5 RENTAL TREND BUSINESS DISTRICT-WISE ABSORPTION SPLIT Rental growth was healthy H2 2014 H2 2015 FIGURE 6 WEIGHTED AVERAGE RENTAL MOVEMENT across locations, and 50% SBD locations such as 45% 54 40% 38% Pallikarnai, Guindy and 35% 52 31% Nandambakkam continue 30% 26% 25% 50 25% to witness an above- 20%17% mn sq.ft 20% average rental growth, 15% 48 15% 14% 9% particularly due to their 10% INR / sq.ft./mont h 46 5% 5% specific offerings for 0 44 medium-scale enterprises CBD SBD PBD Ambattur SBD OMR PBD OMR & GST that are looking for office Source: Knight Frank Research 42 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016E spaces of up to 0.1 mn Source: Knight Frank Research sq ft H2 2015 • Rental values have seen a • Rental growth was healthy across sustained rise since 2012 on locations, and SBD locations the back of steady demand such as Pallikarnai, Guindy and 3.1 and a lesser amount of office Nandambakkam continue to H2 2014 mn sq.ft. space inventory coming online in witness an above-average rental successive years. growth, particularly due to their 2.2 specific offerings for medium-scale mn. sq.ft. • The severe shortage of good enterprises that are looking for H1 2015 quality office space in prime office spaces of up to 0.1 mn sq ft. areas has rendered the market 2.3 favourable to landlords, who mn sq.ft. are asking for higher rents from tenants with each passing quarter. • The lack of vacant office stock, coupled with steady demand, • The peripheral business districts as nearly 87% of the sector’s has pushed the weighted average saw a spurt in demand, while transactions took place in this rentals in the Chennai office the other business districts market. space market to `52 per sq ft per experienced a fall in market share month at the end of H2 2015 – a • Practically all the area taken up in H2 2015. significant 4% growth YoY. by the BFSI sector in H2 2015 • This could be attributed to the was accounted for by Yes Bank, comparatively higher rentals and which leased 0.7 mn sq ft at One the lack of viable office stock in the Indiabulls Park Tech in Ambattur. BUSINESS DISTRICT-WISE RENTAL MOVEMENT central and secondary business • Just three locations— RENTAL VALUE RANGE IN H2 2015 6 MONTH districts. BUSINESS DISTRICT 12 MONTH CHANGE Ambattur, Kandanchavadi and (`/SQ FT/MONTH) CHANGE • The peripheral business districts Shollinganallur—accounted for CBD & off-CBD 60–95 4% 2% are the only markets that have a over half of the total transacted significant availability of viable volume in H2 2015. PBD OMR & GST Road 25–35 3% 1% office spaces with large floor SBD OMR 45–80 3% 1% plates in the city. This factor, coupled with the comparatively PBD Ambattur 28–35 3% 2% low rentals, has rendered the SBD 50–65 3% 2% PBD – Ambattur business district Source: Knight Frank Research a BFSI sector favourite in H2 2015,

56 57 INDIA REAL ESTATE RESEARCH

OUTLOOK FOR THE NEXT SIX MONTHS

PROJECTIONS H1 2015 H1 2016E GROWTH

New supply (mn sq ft) 0.9 1.4 44% Absorption (mn sq ft) 2 2.4 20%

Vacancy (%) 19% 13.4%

Weighted average rental (` / sq ft / month) 50 52 4% Source: Knight Frank Research Yashwin Bangera Assistant Vice President - Research • We believe that the absorption • Improved accessibility through levels will continue their uptrend infrastructure initiatives such as in H1 2016, as occupier interest the metro, the quality of office remains strong at the end of the office spaces and lower rentals current period and no significant compared to the CBD and off-CBD supply is scheduled to come online locations continue to enhance the in the short term. the SBD’s appeal as a desirable HYDERABAD occupier destination. • Based on our analysis, the current rate of enquiries and our • Locations such as Guindy, in the interactions with market players, SBD, have already seen a run- we estimate that approximately up in occupier interest and rents 2.4 mn sq ft of office space will be alike, and adjoining locations, absorbed in H1 2016 – a healthy such as Mount-Poonamallee 20% growth over H1 2015. This, Road and Nandanam, should see in tandem with a limited 1.4 mn development interest as viable We believe that the sq ft scheduled for delivery in the land becomes scarce in the Chennai office space market, will surrounding locations. absorption levels will force vacancy levels to go below continue their uptrend 14% and support sustainable rental growth, inevitably setting in H1 2016, as occupier the stage for further office space interest remains strong development. • Going forward, we expect that the at the end of the current current momentum in demand will period and no significant sustain itself and have a direct impact on rentals. We project supply is scheduled to rentals to grow by a healthy 4%, come online in the short from `50 per sq ft per month in H1 2015 to approximately `52 per sq ft term per month by H1 2016.

58 59 INDIA REAL ESTATE RESEARCH

Steady absorption, RESIDENTIAL MARKET coupled with falling HYDERABAD RESIDENTIAL MARKET LAUNCHES, demand, has reduced the ABSORPTION AND PRICE TRENDS unsold inventory levels to

31,480 units – the lowest FIGURE 1 since 2010 HYDERABAD MARKET TRENDS LAUNCHES ABSORPTION WT. AVG. PRICE (RHS)

9,000 3,700 8,000 3,600 7,000 6,000 3,500 5,000

3,400 ` / sq ft 4,000 Number of unit s 3,000 3,300 2,000 3,200 1,000 0 3,100 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E

Source: Knight Frank Research • The closure of the Telangana in the number of units launched, issue has helped keep absorption compared to the previous period. numbers stable as 2015 ended On the other hand, the festive on a flat note. However, the season did not boost absorption Hyderabad residential market levels, which stayed largely has yet to show definite signs of stagnant. recovery in market activity. • Steady absorption, coupled with • While the sales volume fell falling demand, has reduced the marginally, by 1% in 2015 unsold inventory levels to 31,480 compared to the previous year, units – the lowest since 2010. new launches dropped by a more • The ongoing supply crunch and pronounced 14% during the same the reduction in unsold inventory period. have helped sustain price growth. • The end of the year did show Weighted average prices in the some promise in terms of supply, Hyderabad residential market grew FIGURE 2 as H2 2015 saw an 11% growth by 3.1% YoY in H2 2015. MICRO-MARKET SPLIT OF LAUNCHED UNITS

H2 2014 H1 2015 H2 2015

MICRO-MARKET SPLIT OF RESIDENTIAL LAUNCHES 80% 70% 70% MICRO-MARKETS OF HYDERABAD 66% 60% MICRO-MARKET LOCATIONS 58% 50% HMR – Central Begumpet, Banjara Hills, Jubilee Hills, Panjagutta, Somajiguda 40%

HMR – West Kukatpally, Madhapur, Kondapur, Gachibowli, Raidurgam 30%

20% 18% HMR – East Uppal, Malkajgiri, L. B. Nagar 15% 15% 12% 11% 12% HMR – North Kompally, Medchal, Alwal, Quthbullapur 10% 8% 6% 1% 1% 5% 3% HMR – South Rajendra Nagar, Shamshabad 0 CENTRAL EAST NORTH SOUTH WEST *HMR refers to the Hyderabad Metropolitan Region Source: Knight Frank Research

60 61 INDIA REAL ESTATE RESEARCH

MICRO-MARKET-WISE RESIDENTIAL SALES H2 2015 H2 2015 FIGURE 4 5,740 MICRO-MARKET-WISE RESIDENTIAL SALES H2 2014 units H2 2014 H1 2015 H2 2015 5,151 80% units 70% H1 2015 59% 60% 58% 57% 5,457 50% units 40%

30%

20% 12% 17% 11% 10% 13%12% 12%13% 8% 10% 5% 7% 5% • West Hyderabad attracts most of greater development interest • The shares of the East, South and 0 the development interest in the compared to their counterparts Central Hyderabad micro-markets CENTRAL EAST NORTH SOUTH WEST city, as its residential ethos and in the southern and eastern have dropped compared to the

proximity to the IT/ITeS and BFSI peripheries. preceding period, while those of Source: Knight Frank Research sector hubs, such as HITEC City West and North Hyderabad have • East Hyderabad has seen and Gachibowli, continue to attract increased during the same period. development interest plummet young IT employees that form the in recent years, as homebuyer • In the long term, East Hyderabad bulk of the city’s workforce. activity has greatly fallen short of should see more traction in terms • While the West zone continues to expectations. However, this lack of launches, especially along the H2 2015 dominate the residential market, of supply has helped reduce the Warangal highway, once the ORR northern locations, particularly unsold inventory to a large extent. and the metro connecting it to the 7,780 Jeedimetla and Aminpur, saw western locations are H2 2014 units 7,829 units H1 2015 • Nearly all the zones saw FIGURE 3 developers launching basic TICKET SIZE SPLIT OF LAUNCHES DURING H2 2015 7,123 housing projects with few units amenities in the `2.5–5 mn ticket 100% size range, in a bid to attract the 90% budget-conscious buyer. 80% • Almost 40% of the unit launches 70% in H2 2015 were in the `2.5–5 mn • While the relative shares of the zone’s share had been declining 60% ticket size range. various residential zones in over the three half-year periods Hyderabad have not deviated prior to H2 2015, while the other 50% • Nearly 66% of the units launched in much, the North zone experienced markets have been gaining over H2 2015 were under `7.5 mn. 40% an increase in its share of the same period. This is largely 30% • Projects with average ticket absorption during H2 2015 due to because buyers have been

20% sizes above `10 mn were, a significant increase in launches resisting developers’ attempts understandably, launched largely in during the same period. to raise prices. However, H2 10% the western and central locations 2015 saw a marginal increase • Apartment and villa projects within - during H2 2015. in the West zone’s share of the < `2.5 MN `2.5 - 5 MN `5 - 7.5 MN `7.5 - 10 MN `10-20 MN >-20 MN gated communities have been absorption pie, indicating that • The fact that West Hyderabad gaining the buyers’ favour in recent buyer sentiments are slowly CENTRAL EAST NORTH SOUTH WEST has a healthy representation of times due to the access to social improving. Source: Knight Frank Research projects launched in all ticket sizes infrastructure and security on offer. underscores its attraction as a • It was observed that the West residential destination.

62 63 INDIA REAL ESTATE RESEARCH

PREMIUM RESIDENTIAL MARKET LAUNCHES, MICRO-MARKET SPLIT OF UNDER-CONSTRUCTION UNITS AS OF DECEMBER 2015 ABSORPTION AND PRICE TRENDS The weighted average

FIGURE 5 price growth in the PREMIUM MARKET TRENDS premium segment has LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) A 6% tapered off since 2013, CENTRAL 1,000 5,850 B 900 5,800 from 13% YoY during H2 EAST 5% 800 5,750 2013 to a stagnant 1% C 14% NORTH 700 5,700 in H2 2015, due to high D B 600 5,650 SOUTH 15% prices and the real estate C E 500 5,600 A WEST 60% investment climate going D 400 5,550 ` / sq ft

Number of unit s 300 5,500 sour, especially in this 200 5,450 segment E 100 5,400 0 5,350 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015

Source: Knight Frank Research Note: Premium markets include locations where the average ticket size of a residential unit Source: Knight Frank Research is above ` 15 mn, are in close proximity to the central business district of the city and have witnessed new project launches in the preceding three years

PREMIUM MARKET

HYDERABAD MARKET FUNDAMENTALS MICRO-MARKET LOCATIONS

Banjara Hills, Begumpet, Jubilee Hills, Srinagar Hyderabad is arguably the most the scapegoat for this status quo. workforce and consequently, an HMR – Central Colony, Somajiguda affordable residential real estate However, the promised upswing in increase in the existing homebuyer market among the six Indian market traction has not occurred base in a residential market. It HMR – West Madhapur frontline cities, which include even eighteen months after the remains to be seen how long the four metros and Pune and formation of Telangana, as both it takes for volumes to revive • The premium market of • The weighted average price growth Hyderabad. The city’s real estate demand and supply continue to in the residential market, while Hyderabad, which constitutes in the premium segment has market has been vilified by investors lay low. The office market has an improvement in sentiments locations such as Banjara Hills, tapered off since 2013, from 13% for underperforming in comparison however toed the line as far as according to the Knight Frank Jubilee Hills, Madhapur, Begumpet YoY during H2 2013 to a stagnant to every other residential market market expectations go and is Sentiment Index seems to indicate and Srinagar Colony, among 1% in H2 2015, due to high prices across almost all time periods, moving from strength to strength, that the market is on the cusp of others, has experienced a 55% and the real estate investment YoY growth in launches during climate going sour, especially in in spite of the great promise of as existing office space inventory a recovery. While market volumes H2 2015, while the absorption this segment. growth. Residential properties are shows signs of falling short of could indeed be close to a recovery, numbers have stayed almost the available within the boundaries of demand. Vacancy levels have fallen observers should not be surprised same compared to the previous the ORR from ` 2,000 per sq ft on a huge four percentage points in the to see the price growth being muted reference period. the outskirts to ` 14,000 per sq ft in past 18 months since the formation in comparison as Hyderabad has • Project launches, which topped premium locations such as Banjara of Telangana, underscoring the an abundance of developable land out in H2 2013 when they spiked Hills. Prices even in premium momentum that the office market and an extremely well developed over 100% YoY and dropped in offerings in the most sought-after juggernaut has gained. transport infrastructure base that 2014, are seeing a recovery in the current period, as the market locations of the city are comparable supports the infusion of fresh Characteristically, the residential appetite for gated communities to those of mid-segment locations residential supply in case prices see market follows office markets, as in these premium locations has in Mumbai. significant increases in a short time, increased office space take-up grown. effectively capping price increases. The Telangana issue has long been points to an increase in the existing

64 65 INDIA REAL ESTATE RESEARCH

HYDERABAD MARKET HEALTH FIGURE 7 MICRO-MARKET-WISE QTS VS AGE OF INVENTORY Trending up from a QTS FIGURE 6 level of just 3 in H2 2011 QUARTERS TO SELL (QTS) UNSOLD INVENTORY ANALYSIS HMR CENTRAL HMR EAST HMR NORTH HMR SOUTH HMR WEST 22 to 9.4 in H2 2015, the HYDERABAD PREMIUM MARKETS 20 12 premium segment has 18 deteriorated much more 10 16

rapidly compared to 8 14

the overall Hyderabad 12 6 residential market 10 No. of Quarters 4 8

2 6

0 4 DEC-13 MAR-14 JUN-14 DEC-14 MAR-14 JUN-15 SEP-15 DEC-15 01520 15 0 25 30 Source: Knight Frank Research QTS Source: Knight Frank Research • The quarters to sell unsold Hyderabad residential market, as inventory (QTS) is the number the supply of projects with average • It is clear from the adjoining comparatively low QTS and age inventory. of quarters required to exhaust ticket sizes over `15 mn increased chart that the Central zone is the of inventory, considering that it • East Hyderabad has a QTS of the existing unsold inventory in dramatically, especially in 2012 healthiest market today, as it has carries the largest inventory among just 5 quarters, second only to the market. The existing unsold and 2013, while demand dried up. the lowest QTS, and comparatively, all the zones in Hyderabad. the Central zone and much below inventory is divided by the average the youngest unsold inventory • Having said that, the QTS for • Incidentally, its proportion of the 8.4-quarter average for the sales velocity of the eight trailing among all the residential markets premium locations in Hyderabad unsold inventory to under- Hyderabad market as a whole. quarters in order to arrive at the of Hyderabad. This could be is still close to the market average construction stock is also the It shows the increasing interest QTS number for that particular attributed to the limited inventory today, which is quite exceptional lowest among all the zones. that this zone is attracting due quarter. A lower QTS indicates a and inherent supply constraints in compared to other cities where to the focus on the completion healthier market. this zone. • North Hyderabad contains the premium locations suffer with a of the ORR and the promised oldest inventory, while South • The Hyderabad market QTS has much higher QTS. • West Hyderabad is arguably the development along the Warangal Hyderabad will take the most time been range-bound between 8–9 next healthiest market, as it has a highway. • We do not expect the QTS level for to liquidate its existing unsold quarters, but has been on an the Hyderabad residential market uptrend since the end of 2013. to worsen further during H1 2016, • Now at 8.4 quarters, the QTS is at as we believe that the continuously PRICE MOVEMENT DURING H2 2015 its lowest level in 2015. strengthening office market and uptick in our sentiment index is • The steep fall in launches had WEIGHTED AVERAGE PRICE MOVEMENT IN HYDERABAD rubbing off on the Hyderabad helped the QTS level stay range residential market as well. bound; however, declining LOCATION PRICE RANGE IN H2 2015 (`/SQ FT) 12 MONTH CHANGE 6 MONTH CHANGE absorption levels have outweighed this factor. Consistently-declining unsold inventory levels and an Hyderabad city 3,610 3.1% 2.9% expected recovery in demand Premium markets 5,825 0.6% 0.3% should help alleviate this situation. • Trending up from a QTS level • The weighted average asking • However, the weighted average • Prices continued to firm up of just 3 in H2 2011 to 9.4 in H2 prices for the Hyderabad prices in the premium locations across locations in Central and 2015, the premium segment residential market grew marginally, stagnated over the 12 months West Hyderabad due to a limited has deteriorated much more by 3.1% YoY to `3,610 per sq ft in ending December 2015, with inventory and launches at higher rapidly compared to the overall H2 2015. growth since H2 2014 barely price ranges, respectively. making it into positive territory.

66 67 INDIA REAL ESTATE RESEARCH

PRICE MOVEMENT IN SELECT LOCATIONS OFFICE MARKET PRICE RANGE IN H1 2015 12 MONTH 6 MONTH LOCATION MICRO-MARKET (`/SQ FT) CHANGE CHANGE HYDERABAD OFFICE MARKET STOCK, NEW Begumpet Central 4,500–6,000 4% 3% COMPLETIONS, ABSORPTION AND VACANCY TRENDS Banjara Hills Central 7,000–9,000 5% 3% FIGURE 1 Jubilee Hills Central 4,500–6,200 6% 2% OFFICE SPACE STOCK AND VACANCY LEVELS Madhapur Central 5,800–7,800 5% 0% H2 2015 experienced the STOCK OCCUPIED STOCK VACANCY (RHS) Uppal East 2,600–2,800 4% 3% highest absorption levels L. B. Nagar East 2,500–2,900 4% 4% 70 20% seen in any half-yearly Nacharam East 2,200–2,800 3% 3% 18% 60 period in the history of the Kompally North 2,200–3,100 2% 6% 16%

Quthbullapur North 2,100–2,600 -3% 3% 50 14% Hyderabad office space

Shamirpet North 2,000–2,400 -1% 1% 12% 40 market, on the back of Shamshabad South 2,300–3,000 2% 2% 10% big-ticket transactions by Bandlaguda South 2,200–3,100 2% 2% mn sq.ft . 30 8% Qualcomm, Salesforce, Rajendranagar South 2,100–3,100 1% 2% 20 6% Kondapur West 4,000–5,200 2% 2% 4% Unitedhealth Group and 10 Gachibowli West 3,800–4,750 5% 4% 2% J.P. Morgan Manikonda West 3,400–4,500 5% 3% 0 0% H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E Kukatpally West 2,800–4,000 6% 3% Madeenaguda West 2,600–3,350 3% 5% Source: Knight Frank Research • The Hyderabad office space • 2015 recorded 4.6 mn sq ft of OUTLOOK FOR THE NEXT SIX MONTHS market continues to trend upward absorption, marginally lower as demand stays robust and than the 4.7 mn sq ft absorbed Projections H1 2015 H1 2016E CHA supply tapers down for the second in 2014. 2015 also saw 3.9 mn sq straight year. ft of office space come online, Launches (units) 5,457 5,300 -3% compared to 5 mn sq ft in the • H2 2015 experienced the highest previous year. Absorption (units) 7,123 7,450 5% absorption levels seen in any half- yearly period in the history of the • Hyderabad has an office stock of Weighted average price (`/sq ft) 3,510 3,620 3% Hyderabad office space market, on approximately 64 mn sq ft today,

Source: Knight Frank Research the back of big-ticket transactions with a vacancy of 14.5%. by Qualcomm, Salesforce, • Hyderabad’s business districts are • The health of the office market is • We believe that absorption levels Unitedhealth Group and J.P. well connected via the internal/ a fair indicator of the economic will stay buoyant going forward, as Morgan. outer ring roads, and the upcoming activity / business sentiment in the our research and interactions with metro will enhance this further. city, and if the drop in its vacancy developers and other stakeholders • Robust absorption numbers, While this is an excellent factor levels and steady absorption lead us to believe that the underlying coupled with falling supply, have to promote balanced real estate are anything to go by, then the sentiment in the Hyderabad residential pushed down the vacancy levels growth in the city, it does tend to Hyderabad residential market market is improving steadily. from 17.7% in 2013 to 14.6% at the cap the real estate price growth, as is most likely on the cusp of a end of 2015. • We do expect the supply numbers people are willing to move further recovery. to revive over the second half of 2016, • While the recently concluded away from the business districts to • West Hyderabad locations will while forecasting that H1 2016 would analysis period reached a new save on real estate costs. continue to be the centre of have a flat-to-slightly negative growth high and underscored the buoyant • We do not expect the steep de- residential real estate activity in YoY in terms of supply. sentiments in the market, the growth in launches and absorption Hyderabad, be it launches, sales annual numbers ended on a flat • The continued pressure on supply to continue, because the easing or price growth. By contrast, South note. and the slowly-improving economic of the political situation, initiatives Hyderabad still has a long way to sentiments will support prices, which such as the recent rate cuts by the go, as there is no significant driver are expected to grow by 3% YoY, RBI and an overall improvement to attract buyer interest in the short reaching `3,620 per sq ft in H1 2016. in business sentiment will reap term. rewards in the future.

68 69 INDIA REAL ESTATE RESEARCH

• The Hyderabad office market FIGURE 2 DEAL SIZE ANALYSIS experienced approximately 2.4 mn NEW COMPLETIONS AND ABSORPTION sq ft of supply and a massive 3.1 NEW COMPLETION ABSORPTION FIGURE 4 mn sq ft of absorption during H2 AVERAGE DEAL SIZE AND NUMBER OF DEALS 2015 – a 23% and 13% growth, 3.5 respectively, compared to the 3.0 3.1 AVERAGE DEAL SIZE (SQ.FT.) NUMBER OF DEALS (RHS) 3.0 2.8 same period in the previous year. 70,000 100 2.5 2.4 90 60,000 1.9 80 The significant increase 2.0 1.9 1.9 1.8 50,000 70 1.5 1.5 in the number of deals, 60 mn sq.ft 1.5 40,000 50 sq.ft coupled with the jump 30,000 1.0 40 20,000 30 Number of deals in transaction volumes, 0.5 20 10,000 also indicates a higher 0 10 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E 0 0 propensity or greater H1 2014 H2 2014 H1 2015 H2 2015 Source: Knight Frank Research confidence among Source: Knight Frank Research SECTOR ANALYSIS occupiers to take up office • The number of transactions has demand poured into the market. space in the market been increasing consistently This is also among the highest- FIGURE 3 • The IT/ITeS sector has traditionally since H2 2014, when the state ever concentrations of big-ticket SECTOR-WISE SPLIT OF ABSORPTION dominated the absorption pie in the Hyderabad office space of Telangana was formed. H2 transactions in a six-month period. H2 2014 H1 2015 H2 2015 2015 saw the highest number market; however, other services • The significant increase in the 70% of transactions in three years, sector companies from the number of deals, coupled with coupled with the highest-ever 60% consulting, healthcare and the jump in transaction volumes, e-commerce space have been volumes in any six-month period, 48% also indicates a higher propensity 50% 49% 47% accentuating the upward trajectory 39% increasing their presence in recent or greater confidence among 40% that the Hyderabad office market 40% years. occupiers to take up office space 35% has taken. in the market. 30% • Qualcomm’s 0.39 mn sq ft lease at Raheja Mindspace was the • There were nine transactions 20% 17% largest transaction of H2 2015 and exceeding 0.1 mn sq ft in H2 2015, as much of the latent 10% 9% 10% made up the bulk of the volume 2% 1% 2% transacted by the manufacturing 0 sector. SELECT TRANSACTIONS BFSI IT/ITeS MANUFACTURING OTHER SERVICES • The other services sector’s share Source: Knight Frank Research BUILDING OCCUPIER LOCATION APPROX. AREA (SQ FT) had eclipsed that of the IT/ITeS Note: BFSI includes support services sector in H2 2014, but the current Raheja Qualcomm Madhapur 388,500 period saw it take up the most Divyasree Orion Salesforce Raidurgam 200,000 space in the market again, at 1.2 Raheja Mindspace Unitedhealth group Madhapur 150,000 H2 2015 mn sq ft, or 39% of the entire market. Divyasree Orion NTT Data Raidurgam 120,000 3.1 • The manufacturing and BFSI Divyasree Trinity J.P. Morgan Madhapur 120,000 mn sq.ft. sectors saw manifold increases H2 2014 in the space taken up, compared Signature Towers Income Tax Kondapur 112,000 to H2 2014, as big names such Laxmi Cyber Point Fernandez Hospital Banjara Hills 100,000 as IBM, AMD, J. P. Morgan and 2.8 Flagstone Towers ValueMomentum Gachibowli 100,000 mn. sq.ft. KPMG were active in H2 2015. H1 2015 Divyasree Trinity Deloitte Madhapur 92,000 1.5 Divyasree Omega Deloitte Madhapur 92,000 mn sq.ft. Raheja Building 11 J.P. Morgan Madhapur 87,700 Source: Knight Frank Research

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BUSINESS DISTRICT ANALYSIS FIGURE 5 BUSINESS DISTRICT-WISE ABSORPTION SPLIT

BUSINESS DISTRICT CLASSIFICATION H2 2014 H2 2015

BUSINESS DISTRICTS MICRO-MARKETS 120%

Banjara Hills, Jubilee Hills, Begumpet, Ameerpet, Somajiguda, Himayat Nagar, Raj 96% CBD & off-CBD 100% Bhavan Road, Punjagutta 80% 76% SBD Madhapur, Manikonda, Kukatpally, Raidurg 60% PBD West Gachibowli, Kokapet, Madinaguda, Nanakramguda, Serilingampally 40% PBD East Uppal, Pocharam 20% 0% 12% 11% 4% 1% 0 0% CBD & Off-CBD SBD PBD PBD EAST

Source: Knight Frank Research

H2 2015 3.1 mn sq.ft. H2 2014 2.8 mn. sq.ft. H1 2015 1.5 mn sq.ft.

• The scarcity of viable office space experienced a huge spurt in office spaces in locations such as in the SBD locations saw the share demand during H2 2015, at 0.37 Gachibowli and Nanakramguda. of this business district fall during mn sq ft, compared to less than • The spillover demand from SBD IT/ H2 2015, while all other business 0.05 mn sq ft in H2 2014. Lakshmi ITeS hotspots, such as Madhapur districts experienced manifold Cyber Point and Sanali Info Park and Kondapur, which have almost increases in their market share themselves accounted for almost no viable large-format office during the same period. However, half of the total space consumed spaces left, pushed occupiers to the SBD continues to dominate by lessees in the CBD and off-CBD take up spaces in the PBD West the office space landscape of business district. business district. Hyderabad, as it is the most • PBD West is second only to the sought-after business district in • Just three locations—Madhapur, SBD in terms of the quality of the city. Madhapur and Kondapur Kondapur and Raidurgam— office development for the IT/ solely accounted for close to 2.0 accounted for over 75% of the ITeS sector. This business district mn sq ft of office space absorption space transacted during H2 2015. also saw absorption volumes during H2 2015. triple in H2 2015, compared to • The most prolific increase in the same period in the previous absorption was seen in the CBD & year due to the comparatively off-CBD business district, which greater availability of good quality

72 73 INDIA REAL ESTATE RESEARCH

RENTAL TREND OUTLOOK FOR THE NEXT SIX MONTHS Just three locations— FIGURE 6 PROJECTIONS H1 2015 H1 2016E GROWTH Madhapur, Kondapur and WEIGHTED AVERAGE RENTAL MOVEMENT Raidurgam—accounted New supply (mn sq ft) 1.5 1.9 27% 44 Absorption (mn sq ft) 1.5 1.8 23% for over 75% of the space 43 transacted during H2 42 Vacancy (%) 16% 14% 40 2015. Weighted average rental (` / sq ft / month) 40 43 7% 41 Source: Knight Frank Research 39 38

INR / sq.ft./mont h 37 • Approximately 1.9 mn sq ft of destinations by the IT/ITeS 36 quality office space is expected to sector today, and will continue to 35 come online in H1 2016 and will be experience the strongest rental 34 instrumental in boosting absorption growth, going forward. Gachibowli numbers to approximately 1.8 mn and Nanakramguda, in the PBD 33 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016E sq ft – a 23% growth over H1 2015. West business district, will also see strong rental growth. Source: Knight Frank Research • A steady demand pipeline, coupled with limited office space deliveries • Rentals in the Hyderabad office • The PBD West business district hitting the market in the following market, which had stagnated till experienced the next highest six months, should push vacancy 2013, have seen sustained growth growth in rentals on the back of levels down to an estimated 14%, since 2014, as the Telangana issue big-ticket deals by other services and consequently, drive rental achieved resolution. and IT/ITeS sector companies such growth by a further 7% YoY, from as ValueMomentum, Capillary • The lack of vacant office stock, `40 per sq ft per month in H1 2015 Technologies and Genpact. coupled with steady demand, to approximately `43 per sq ft per Practically all of the transaction has pushed the weighted average month by H1 2016. activity during the period rentals in the Hyderabad office took place in Gachibowli, and • The SBD locations along the space market to `42 per sq ft per consequently, it also experienced IT Corridor of HITEC City and month at the end of H2 2015 – a the most appreciation in asking Kondapur are undisputedly strong 8% growth YoY. rentals, as vacancy levels the most sought-after office • H2 2015 saw rental levels grow continued to drop during H2 2015 across locations, compared to the as well. same period in the previous year. • The PBD East market has SBD locations such as HITEC City witnessed little interest from and Kondapur have experienced occupiers and developers alike, the strongest rent growth in the and saw marginal rental growth market, particularly due to the during this period. absence of viable space in this business district.

BUSINESS DISTRICT-WISE RENTAL MOVEMENT

RENTAL VALUE RANGE IN H2 2015 6 MONTH BUSINESS DISTRICT 12 MONTH CHANGE (`/SQ FT/MONTH) CHANGE CBD & off-CBD 44–49 5% 2% SBD 40–48 9% 6% PBD West 34–38 7% 3% PBD East 27–32 1.5% 1% Source: Knight Frank Research

74 75 INDIA REAL ESTATE RESEARCH

RESIDENTIAL MARKET KOLKATA RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND PRICE TRENDS Kolkata strived to keep FIGURE 1 KOLKATA MARKET TRENDS itself afloat amidst

LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) subdued market 14,000 4,000 sentiments. With new Sangeeta Sharma Dutta Lead Consultant - Research 12,000 residential projects 10,000 being curbed to some 8,000 3,500 extent in the previous six ` / sq ft 6,000 months, the number of 4,000

Number of unit s new launches continued KOLKATA 2,000 0 3,000 to be under pressure in H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E H2 2015. However, the Source: Knight Frank Research city’s sales volume, driven • Kolkata strived to keep itself witnessed during the period, with largely by end users, afloat amidst subdued market mid-segment housing witnessing sentiments. With new residential the most number of launches. witnessed an increase projects being curbed to some • We expect the Kolkata residential of 10% in 2015 vis-à-vis extent in the previous six months, market to improve in the first half the number of new launches 2014. The absorption in of 2016, owing mainly to the strong continued to be under pressure traction in the office market that H2 2015 was significantly in H2 2015. While new launches caused a growth of almost 44% in fell by 6% in 2015 vis-à-vis 2014, better as compared to 2015 compared to 2014, as well as the rate of decline in H2 2015 was the increased momentum in hiring H2 2014 and showed a constrained at 10% as compared activity in the city. The quantum of to H2 2014. recovery of 29%. office transactions in H2 2015 over • On the other hand, the city’s the previous six months showed sales volume, driven largely by a growth of 17%, whereas in H2 end users, remained unaffected 2014, it was a whopping 110% on a by the dip in new launches; in YOY basis. fact, it witnessed an increase • We estimate new launches to of 10% in 2015 vis-à-vis 2014. increase by 29% in H1 2016 The absorption in H2 2015 was compared to H1 2015, with the significantly better as compared to sales volume expected to improve H2 2014 and showed a recovery of significantly in the forthcoming six 29%. months – to the tune of around • The weighted average price 42%, on a YOY basis. remained almost stagnant in H2 • On the price front, we expect 2015, with a slight increase of 1% the weighted average values compared to the corresponding to improve slightly in H1 2016 period in 2014, emphasising the as compared to H1 2015. The fact that the market has remained upcoming period is expected to stable despite the decrease in witness a growth of 2% in the YOY new launches. This marginal prices. appreciation could be attributed to the increased sales volume

76 77 INDIA REAL ESTATE RESEARCH

Rajarhat emerged as the increased significantly in H2 2014, of the new launches in this zone limited number of new launches MICRO-MARKET SPLIT OF RESIDENTIAL LAUNCHES has been reducing gradually in belong to the affordable housing due to land constraints. Its share region with the highest the recent months. While its share sector. has remained almost constant, in of residential launches was at the range of 7–8% during H2 2014 number of residential units FIGURE 2 • Central Kolkata, the traditional 32% in H2 2014 owing to the new and H1 2015, though H2 2015 saw MICRO-MARKET SPLIT OF LAUNCHED UNITS bastion of the upper segment, launched in H2 2015, launches in locations such as BT a slight increase in the share, at witnessed a limited number of H2 2014 H1 2015 H2 2015 Road and Sodepur, it reduced to 10%. accounting for a 42% share new launches in H2 2014 as well 60% 20% in H2 2015. Notwithstanding as H2 2015, although the latter • The Rajarhat area, excluding New of the total number of new the slack in new launches, North 50% 49% period saw a slight improvement Town, was responsible for the Kolkata holds much potential launches. South Kolkata in this figure. These comprised majority of the affordable and 42% with its industrial tag dissipating 40% small projects with very few units, mid-end projects in H2 2015, witnessed a significant gradually. The region has gained 32% 32% owing to land constraints, as a accounting for over 60% of the prominence in recent years, owing number of new launches 30% 28% 28% 27% result of which the region’s share total number of new launches to the existing and upcoming 20% is restricted to just 1% of the total below the ticket size of `5 mn. By in H2 2015 compared to 20% phases of the metro rail, impending number of new launches. contrast, South Kolkata and East 15% infrastructure in and around VIP the preceding six months. 8% 10% Kolkata dominated the high-end 10% 7% Road and Jessore Road, and its • The East zone, comprising segment, with the most number of H2 2015 witnessed the 1% proximity to Rajarhat as well as the locations such as Salt Lake and 0% 0% launches priced above the ticket 0% international airport. The majority Kankurgachi, also observed a launch of large-scale CENTRAL EAST NORTH RAJARHAT SOUTH size of `1 mn.

projects in locations such Source: Knight Frank Research FIGURE 3 as Maheshtala, taking TICKET SIZE SPLIT OF LAUNCHES DURING H2 2015 South Kolkata’s share of 100% residential launches up to 90%

its H2 2014 levels. 80%

70%

60% H2 2015 50% 40%

10,680 30% units 20% H2 2014 10%

- 11,891 < 2.5 MN 2.5 - 5 MN 5 - 7.5 MN 7.5 - 10 MN >10 MN units

H1 2015 CENTRAL EAST RAJARHAT NORTH SOUTH 8,372 Source: Knight Frank Research units MICRO-MARKET-WISE RESIDENTIAL SALES MICRO-MARKETS OF KOLKATA MICRO-MARKET LOCATIONS • Rajarhat has accounted for the for a 42% share of the total to the preceding six months. largest share in the total number number of new launches. Rajarhat Being a conventionally-preferred Central Park Street, Rawdon Street, A.J.C. Bose Road, Minto Park, Elgin Road of new launches in the city in the is expected to maintain positivity residential destination of the city, Kankurgachi, Beliaghata, Salt Lake, Narkeldanga, Keshtopur, E.M. Bypass (eastern last few years owing to persistent regarding the housing demand in it has always been on developers’ East interest from the developer the forthcoming years, considering radars. H2 2015 witnessed the parts) community. Although its share the quantum of office-sector launch of large-scale projects in North Baguiati, Ultadanga, Jessore Road, Shyambazar, Lake Town, B.T. Road, VIP Road had reduced to come at par with development and infrastructure locations such as Maheshtala, North Kolkata in H2 2014, it re- underway in the region. taking South Kolkata’s share of Rajarhat Rajarhat New Town emerged as the region with the residential launches up to its H2 • South Kolkata witnessed a Ballygunge, Alipore, Tollygunge, Narendrapur, Behala, Garia, Maheshtala, E.M. Bypass highest number of residential units 2014 levels. South significant number of new (southern parts) launched in H2 2015, accounting launches in H2 2015 compared • North Kolkata’s share, which had

78 79 INDIA REAL ESTATE RESEARCH

FIGURE 4 MICRO-MARKET SPLIT OF RESIDENTIAL SALES

H2 2014 H1 2015 H2 2015 60%

50% 46%

40% 35% 32% 30% 30% 30% 29% 26%25% 21% 20%

10% 8% 8% 7% 1% 1% 1% 0% CENTRAL EAST NORTH RAJARHAT SOUTH

Source: Knight Frank Research

H2 2015 8,036 units H2 2014 6,245 units H1 2015 5,883 units

• Rajarhat witnessed the largest • On the other hand, South Kolkata H1 2014, dropped its share from share of the absorption in H2 2015, has been witnessing a gradually 32% to 21% in H1 2015. However, accounting for a whopping 46%, decreasing trend in absorption, we expect this region to perform compared to 29% in H2 2014. The which continued in H2 2015 as better in the forthcoming periods region’s share of the sales volume well. It accounted for a 25% share due to the abundance of mid-end has been increasing, primarily of the sales volume in H2 2015, and affordable housing here. due to factors such as the well- which dipped from its 30% share • Despite being preferred residential planned existing and upcoming of the absorption in H2 2014. This locations for the affluent class, road network, the proposed metro decline in absorption needs to be East and Central Kolkata connectivity within Rajarhat and controlled, as the unsold inventory accounted for marginal shares with other locations of the city and is expected to increase in the in the total sales volume in the its proximity to the international coming months. primary market of the city, owing to airport as well as Salt Lake Sector • Meanwhile, North Kolkata, which a relatively smaller inventory size. V – the IT/ITeS hub of Kolkata. had seen an uptick in sales in

80 81 INDIA REAL ESTATE RESEARCH

MICRO-MARKET SPLIT OF UNDER-CONSTRUCTION UNITS AS OF DECEMBER 2015 PREMIUM RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND PRICE TRENDS The premium housing MICRO-MARKET PREMIUM LOCATIONS segment has observed A Park Street, Rawdon Street, Shakespeare Sarani, Central a considerable decline CENTRAL 0% Chowringhee Road in new launches during B 7% EAST East Kankurgachi, Topsia H2 2015, compared to C NORTH 27% Rajarhat New Town H2 2014. This could be D RAJARHAT 32% Ballygunge, Alipore, Tollygunge, Bhowanipore, Jodhpur attributed largely to the B C South E 34% Park economic slowdown that D SOUTH caused developers to A FIGURE 5 PREMIUM MARKET TRENDS hold back the launch of

LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) E premium projects. 800 9,750

700 9,700

600 9,650

Source: Knight Frank Research 500 9,600

400 9,550 Number of unit s 300 9,500 • South Kolkata accounts for a major Madhyamgram and Jessore Road ` / sq ft Rajarhat witnessed the share of the total number of units now have a number of projects 200 9,450 under construction, to the tune of launched by reputed developers, largest share of the 100 9,400 34%, given the fact that the region accounting for 27% of the total absorption, accounting for has been witnessing large-scale residential units underway in the 0 9,350 46% of the total sales in H2 residential development in the last city. H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 few years. Currently, development • The central and eastern markets Source: Knight Frank Research 2014. The region’s share is being observed in the peripheral have fairly marginal shares of units Note: Premium markets include locations where the average ticket size of a residential unit is locations of Narendrapur, Sonarpur above `15 mn, are in close proximity to the central business district of the city and have witnessed of the sales volume has under construction, to the tune of Road and Diamond Harbour Road. new project launches in the preceding three years less than 1% and 7% respectively. been increasing, primarily This region is preferred, chiefly due • Kolkata’s premium market, of premium projects. to its good social infrastructure, comprising locations such as due to factors such as the • On the other hand, H2 2015 saw an causing developers to launch their Chowringhee, Rawdon Street, improvement of 4% in absorption well-planned existing and projects here. Ballygunge and Jodhpur Park, compared to the same period among others, witnessed the upcoming road network, • South Kolkata is followed by in 2014. This bodes well for the launch of a number of high- the proposed metro Rajarhat, with a 32% share of the premium market of the city. total number of residential units end residential projects in the connectivity within Rajarhat under construction. This zone, last year in locations such as • The weighted average price growth E.M. Bypass, Chowringhee and YOY in the premium segment and with other locations of comprising several Action Areas, has witnessed frenetic residential Rajarhat. However, the segment remained almost constant, with the city and its proximity to activity in the last decade and has observed a considerable a marginal improvement of 1% decline in new launches during observed in H2 2015 over H2 the international airport as boasts the presence of most key real estate developers. H2 2015, compared to H2 2014. 2014. This relative stability in the well as Salt Lake Sector V – H2 2015 witnessed a steep weighted average price could be • North Kolkata, recognised decline of 68% over the number attributed to the increase in the the IT/ITeS hub of Kolkata. primarily as an industrial area of new launches in H2 2014. This sales volume during the period, till recently, has emerged as a could be attributed largely to the coupled with constricted launches. preferred residential location. economic slowdown that caused Areas such as Sodepur, B.T. Road, developers to hold back the launch

82 83 INDIA REAL ESTATE RESEARCH

segment has been higher than the and the largest quantum of and proximity to the international KOLKATA MARKET HEALTH fall in demand. unsold inventory in the city – the airport as well as the employment consequence of a sizeable number hub of Sector V have helped this • Among the various zones, East of annual new launches in the micro-market perform better in The QTS for Kolkata has FIGURE 6 Kolkata is currently the best- region. Despite being a preferred recent months. QUARTERS TO SELL (QTS) UNSOLD INVENTORY ANALYSIS performing market of the city, with decreased somewhat residential destination, its QTS the lowest QTS of 9.2 and age of • With a QTS of 9.9, North Kolkata KOLKATA PREMIUM MARKETS has been higher owing to a large since H1 2015, the growth inventory pegged at 7.5 quarters. accounted for a lower age of 14 concentration of high-end projects The presence of Salt Lake Sector inventory at 7.8 quarters. Though in demand for housing that generally see slower sales 13 V, one of the key employment hubs this region also has a sizeable than mid-end developments. in the last 12 months 12 of the city, catering primarily to the quantum of unsold inventory, it Besides, the newer employment IT/ITeS sector, and its proximity enjoys the advantage of a relatively being one of the reasons 11 hubs of the city are located in to Rajarhat—another upcoming IT smaller unsold inventory size, 10 the eastern and north-eastern for this decrease. East hub—have made East Kolkata a having evolved later than the parts of the city, thereby shifting 9 preferred market for homebuyers. South zone. Thus, we expect this Kolkata is currently the homebuyer focus there. 8 However, the residential market market to pick up momentum once best-performing market No. of Quarters here is relatively smaller than in the • Rajarhat followed East Kolkata the infrastructure projects are 7 of the city, with the lowest other parts of the city and does not closely and is the second best completed. 6 have sufficient inventory and sales performing market, with a QTS of • Due to its constricted market size, QTS. The presence of volume compared to the other 9.5. Factors such as well-planned 5 the premium residential zone of zones. existing and upcoming road Salt Lake Sector V, one 4 Central Kolkata does not seem to networks, the proposed metro DEC-13 MAR-14 JUN-14 DEC-14 MAR-14 JUN-15 SEP-15 DEC-15 • On the other hand, South impact the city’s residential market of the key employment connectivity within Rajarhat and Source: Knight Frank Research Kolkata has the highest QTS prominently. hubs of the city, and its with other locations of the city, • The quarters to sell unsold 2015, and currently stands at 10.7 proximity to Rajarhat— inventory (QTS) is the number quarters. The growth in demand another upcoming IT of quarters required to exhaust for housing in the last 12 months AFFORDABLE HOUSING SEES AN IMPETUS IN A SLOW MARKET the existing unsold inventory in could be cited as the main reason hub—have made East the market. The existing unsold for this decrease. Significantly, Kolkata, in recent times, has nature of its residents and the gated communities established Kolkata a preferred market inventory is divided by the average the QTS for the city’s premium witnessed a change in its socio- current tepid real estate scenario. in good neighbourhoods. In case sales velocity of the preceding markets, which had witnessed a economic structure. Conventional Besides, they have realised over the of B.T. Road, it is well connected for homebuyers. However, eight quarters in order to arrive at sharper rise than the city in Q4 joint family set-ups have given way last few years that there is a huge with the office projects located at the QTS number for that particular 2014 is set to converge with the the residential market here to nuclear families, while increase shortfall in demand for houses for Rajarhat and Salt Lake Sector V. quarter. A lower QTS indicates a overall QTS, and is currently at 11.4 is relatively smaller than healthier market. quarters. This could be attributed in job opportunities has led to rising the middle income and low income While Rajarhat is better known for to the fact that the correction in aspiration levels amongst the city’s groups. The slackening of residential its slew of premium and mid-end in the other parts of the • The QTS for Kolkata has new launches in the premium residents. Pent-up demand for demand has led developers to re- projects in New Town, the region city and does not have decreased somewhat since H1 housing units led the city to witness strategise their product offerings also comprises several affordable sufficient inventory and FIGURE 7 a surge in residential development and launch their projects at lower projects in the further Action Areas, sales volume. MICRO-MARKET-WISE QTS VS AGE OF INVENTORY during 2006–08, thereby making the rates in the peripheral locations of which will continue to garner buyer market end-user driven. Besides the city. This strategy seemed to interest. Metro rail connectivity will RAJARHAT EAST CENTRAL NORTH SOUTH these end-users, positive economic have paid off well and locations in increase its location attractiveness 14 outlook and transparency in real North Kolkata, such as B.T. Road even further. Other regions that are 13 estate transactions also attracted and Sodepur, and the peripheral witnessing buyer interest are E.M. 12 a large number of NRIs to invest in locations of South Kolkata, such Bypass and Garia, and this trend is 11 the city’s real estate. However, the as Narendrapur, Sonarpur Road likely to continue. recession has had its impact on and Baruipur, witnessed increased 10 Thus, the bottom-line remains that the city’s real estate sector and the developer and buyer interest, 9 there is a huge demand for smaller ongoing slowdown has not taken off chiefly due to the affordable pricing 8 ticket-sized homes, even in a slow well for the sector. of the projects and infrastructure Age of unsold inventory in quarters 7 market. But the real challenge for development. Besides the 6 Interestingly, developers have developers would be the ability to upcoming extension of the metro recognised the need to create more provide smaller homes at lower 5 rail, these locations hold buyer 6810 12 14 affordable housing projects in the prices in the city and make it interest because of the organised QTS city, owing to the price-sensitive profitable. Source: Knight Frank Research

84 85 INDIA REAL ESTATE RESEARCH

PRICE MOVEMENT DURING H2 2015 OUTLOOK FOR THE NEXT SIX MONTHS

WEIGHTED AVERAGE PRICE MOVEMENT IN KOLKATA Projections H1 2015 H1 2016E GROWTH Kolkata managed to shed Launches (units) 8,372 10,760 29% its inertia in H2 2015 and LOCATION PRICE RANGE IN H2 2015 (`/SQ FT) 12 MONTH CHANGE 6 MONTH CHANGE Absorption (units) 5,883 8,345 42% although new launches

Kolkata 3,535 1% 1% Weighted average price (`/sq ft) 3,495 3,570 2% were still somewhat Premium markets 9,699 1% 2% Source: Knight Frank Research constrained, the period witnessed a good traction • Price appreciation across most • The weighted average price trend locations in Kolkata during the last has been similar for both, the in sales. This sentiment • Kolkata managed to shed its inertia • With its slew of premium and 12 months has been rather tepid premium housing market as well in H2 2015 and although new launches mid-end projects in New Town and is likely to continue and remained constant. While the as the city’s overall figure, in the were still somewhat constrained, the affordable projects in the further weighted average prices declined last 12 months, each witnessing in the forthcoming period witnessed a good traction Action Areas, Rajarhat will continue to slightly in H1 2015—primarily due an annual appreciation of 1%. in sales. This sentiment is likely to garner buyer interest. The metro rail months, owing to growth to the subdued sales volume and Premium markets, however, saw continue in the forthcoming months, connectivity will increase its location huge amount of unsold inventory a slightly increased growth rate of stimulators such as owing to growth stimulators such as attractiveness even further. Other in the market—H2 2015 saw some 2% on a half-yearly basis. the increasing rate of employment, regions that are witnessing buyer the increasing rate of movement owing to better sales. amplified office space development interest are E.M. Bypass and Garia, The range of price appreciation employment, amplified and a rise in office space absorption. and this trend is likely to continue. during the period was around The fact that office transactions in office space development 1–2%. • On the price front, we expect the H2 2015 showed a growth of 17% on weighted average price in Kolkata to and a rise in office space a half-yearly basis and a substantial appreciate marginally, by 2% in H1 growth of 110% on an annual basis absorption. The fact that PRICE MOVEMENT IN SELECT LOCATIONS 2016. augurs well for the residential sector. office transactions in H2 PRICE RANGE IN 12 MONTH 6 MONTH • Thus, absorption in H1 2016 is 2015 showed a growth of LOCATION MICRO-MARKET H2 2015 CHANGE CHANGE estimated to surpass the H1 2015 (`/SQ FT) sales figure by 42%, signifying a 17% on a half-yearly basis positive trend in buyer interest in the Park Street Central 12,000–20,000 0% 0% and a substantial growth forthcoming months. of 110% on an annual Rawdon Street Central 10,000–19,500 0% 0% • New launches are likely to improve in H1 2016, given the activity in the basis augurs well for the Ballygunge South 8,500–18,000 0% 0% office sector. The projected new residential sector. launches in H1 2016 are expected Tollygunge South 6,500–16,500 0% 0% exceed the H1 2015 figures by 29%, indicating an increased momentum in Behala South 3,300–4,800 1% 0% the market.

Narendrapur South 2,600–4,300 2% 0%

Kankurgachi East 6,000–9,100 1% 0%

Salt Lake East 5,000–8,000 0% 0%

New Town Rajarhat Rajarhat 4,300–7,000 0% 0%

Madhyamgram North 2,550–3,300 0% 0%

BT Road North 3,200–4,500 0% 0%

Jessore Road North 4,300–5,600 2% 0%

Source: Knight Frank Research

86 87 INDIA REAL ESTATE RESEARCH

RESIDENTIAL MARKET MMR RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND PRICE TRENDS Going forward, in H1 FIGURE 1 2016, infrastructure MMR MARKET TRENDS thrust, the improving office LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) market and stable house Vivek Rathi 40,000 9,000 Vice President - Research prices will aid the housing 35,000 market revival. Amidst 30,000 the demand revival, new 8,000 25,000 launches are to be lower 20,000 and prices, stagnant on

MUMBAI 15,000 ` / sq ft 7,000 account of the inventory 10,000 backlog.

Number of units 5,000

0 6,000 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E

Source: Knight Frank Research

• The MMR residential market price increased by a modest 3% in • The Navi Mumbai International contracted further in H2 2015. In H2 2015 over H2 2014. Airport construction contract is comparison with the half-yearly to be awarded by June 2016. • Going forward, in H1 2016, period of H2 2014, absorption and infrastructure thrust, the improving • Amidst the demand revival, new new launches shrunk by 6% and office market and stable house launches are to be lower and 23%, respectively. A total of 20,776 prices will aid the housing market prices, stagnant on account of the units were launched, making H2 revival. inventory backlog. 2015 the worst H2 period after the global financial crisis. • The central and state governments are pushing critical transit-oriented • Despite the festive season, the infrastructure projects in the MMR markets failed to record a rise and aim at completion by 2019. in demand during this period. Stretched affordability, coupled • The Mumbai Trans Harbour Link with a bleak employment outlook, has secured the environment kept buyers on the fence. clearance, and the bidding process will begin in March 2016. • In the case of supply, against the backdrop of unsold inventory, new • Mumbai’s coastal road has launches would only aggravate secured the forest and CRZ the pressure. Taking cognizance clearances. The bidding process of this, developers have aligned will begin in June 2016. their new launches with the bleak • The metro rail for the Dahisar demand scenario. to DN Nagar, Dahisar East to • In line with the slowdown in the Andheri East, and Cuffe Parade MMR residential property market, to SEEPZ corridors has been the price growth decelerated in H2 expedited. Construction is to 2015. The MMR weighted average begin this year.

88 89 INDIA REAL ESTATE RESEARCH

MICRO-MARKET SPLIT OF RESIDENTIAL LAUNCHES FIGURE 3 TICKET SIZE SPLIT OF LAUNCHES DURING H2 2015

FIGURE 2 100% WESTERN SUBURBS THANE MICRO-MARKET SPLIT OF LAUNCHED UNITS 90% SOUTH MUMBAI H2 2014 H1 2015 H2 2015 80% PERIPHERAL WESTERN SUBURBS 40% 70% PERIPHERAL CENTRAL SUBURBS 36% NAVI MUMBAI 35% 60% CENTRAL SUBURBS 50% CENTRAL MUMBAI 30% 28% 25% 26% 40% 25% 23% 30% 20% 19% 20% 20% 16% 15% 13% 14%14%

Number of unit s 10% 12%13% 12% 10% 10% - 7% 5% < 2.5 MN 2.5 - 5 MN 5 - 7.5 MN 7.5 - 10 MN 10 - 20 MN >20 MN 5% Source: Knight Frank Research 4% 2% 0% 0% 0% 0% 1% 0 CENTRAL CENTRAL NAVI PERIPHERAL PERIPHERAL SOUTH THANE WESTERN MICRO-MARKET-WISE RESIDENTIAL SALES MUMBAI SUBURBS MUMBAI CENTRAL WESTERN MUMBAI SUBURBS SUBURBS SUBURBS FIGURE 4 Source: Knight Frank Research MICRO-MARKET SPLIT OF SALES

H2 2014 H1 2015 H2 2015

40%

35% 32%31% 28% H2 2015 30%

25% 21% 20,776 21% 22% units 20% 17% H2 2014 16%16% 15% 13%13% Number of units 12% 10% 26,833 10% 8% 9% 7% 7% 9% units H1 2015 5% 2% 2% 2% 0% 0% 1% 0 18,887 CENTRAL CENTRAL NAVI PERIPHERAL PERIPHERAL SOUTH THANE WESTERN units MUMBAI SUBURBS MUMBAI CENTRAL WESTERN MUMBAI SUBURBS SUBURBS SUBURBS

Source: Knight Frank Research

• Developers in the peripheral Virar, Palghar), the overall tally is unsold inventory worth `2,020 bn, markets were the most concerned. low for this market. The current of which `595 bn is in the South Many put brakes on new project launch rate is just about a quarter and Central Mumbai markets. H2 2015 plans in H2 2015. The Peripheral of its historical rate. The premium South and Central Central Suburbs (Kalyan, Karjat, Mumbai markets witnessed • The South and Central Mumbai 34,135 Kasara, etc.) and Navi Mumbai a tenfold jump in new project units markets are critical for the industry were the worst hit, seeing launches, to 956 units in H2 2015, because of their value. Even H2 2014 H1 2015 launches lower by 44% and 59%, compared to just 100 units in H2 though they represent just 3% respectively. 2014. of the MMR’s unsold inventory 36,505 28,446 • While new launches grew in volume, they contribute a massive units units Peripheral Western Suburbs (Vasai, 29% to its value. The MMR has an

90 91 INDIA REAL ESTATE RESEARCH

• Even though demand shrunk by • Incremental infrastructure in terms localities such as Wagle Estate MICRO-MARKETS OF THE MMR 6% in the MMR, Thane bucked the of the 32-km Mumbai Metro Line and Ghodbunder Road, Thane. trend with a growth of 13%. 4 (Wadala–Ghatkopar–Thane– Going forward, we estimate an MICRO-MARKET LOCATIONS Kasarvadavali) is scheduled for incremental office space addition • Good connectivity to office implementation in 2017–2023. of 13.7 mn sq ft in the PBD in markets, coupled with the right Central Mumbai Dadar, Lower Parel, Mahalakshmi, Worli, Prabhadevi the next five years (2016–2020). ticket size products, made Thane • Employment hubs in the peripheral Of this, approximately 5 mn sq successful in attracting buyers. business district (PBD), which Central Suburbs Sion, Chembur, Wadala, Kurla, Ghatkopar, Vikhroli, Bhandup, Mulund ft (62,500 jobs) will be in Wagle Incidentally, Thane’s Majiwada– includes the office markets of Estate and Ghodbunder Road. Navi Mumbai Vashi, Nerul, Belapur, Kharghar, Airoli, Panvel, Ulwe, Sanpada Kasarvadavali belt also featured as Thane and Navi Mumbai, have an a top investment destination in our office stock of 23 mn sq ft, out of Peripheral Central Suburbs Kalyan, Kalwa, Dombivli, Ambernath, Bhiwandi, Mumbra, Karjat last report. which 5.4 mn sq ft is present in Peripheral Western Suburbs Vasai, Virar, Boisar, Palghar, Bhayandar, Nalasopara South Mumbai Malabar, Hill, Napean Sea Road, Walkeshwar, Altamount Road, Colaba Thane Naupada, Ghodbunder Road, Pokhran Road, Majiwada, Khopat, Panchpakhadi MUMBAI RESIDENTIAL MARKET DYNAMICS Western Suburbs Bandra, Andheri, Goregaon, Kandivali, Borivali, Santacruz, Vile Parle The MMR residential property opportunities in Mumbai, and prices alone are not sufficient – market can be classified in a price second, that the centre of gravity is connectivity to employment and band of `3,000–100,000/sq ft, with a slowly but gradually moving towards social infrastructure centres is small proportion beyond this range. the north, or closer to the newer critical. Thus, a glaring housing A 33 multiplier between the highest residential markets. shortage estimate on one hand and the lowest band makes for a and 181,000 unsold houses on With a weighted average price of very large price gradient. We take a the other highlight a dichotomy `7,994/sq ft, residential property look at the primary factors that have between consumer need and in the MMR is the costliest in the shaped the MMR residential market, market offering. Ensuring a country. The gap between the MMR widely considered as the country’s supply of affordable houses that and the second costliest market, costliest. Mumbai city is spread have access to employment Pune, is a huge 65%. Compared to over 458 sq km with a population opportunities will ameliorate the the National Capital Region (NCR), base of 12.4 mn (2011). By contrast, situation. While market forces will it is 75% costlier. The premium the larger geography identified as move with a capitalist ideology, it is 67% compared to Bengaluru – the Mumbai Metropolitan Region is the government’s prerogative to the country’s technology capital. (MMR) is spread over 4,355 sq km, focus on creating an ecosystem Notwithstanding the associated which is almost ten times the size of that enhances the right supply. premium in pricing, the MMR has Mumbai city and has a population of Augmenting the right supply been witnessing lower launches 22.8 mn, which is about twice that would require working on several compared to NCR and Bengaluru of Mumbai city. The comparison facets. Building transit-oriented during each of the last two years. becomes pertinent, considering infrastructure that can significantly While the lower supply has reduced that the city has 80% of MMR’s reduce the time and cost for the the unsold inventory pressure and office space of 118 mn sq ft. The daily commute should be a starting brought down the quarters to sell new office development in the next point. The other factors would be (QTS), it has also shrunk the market five years would be such that the seamless construction approvals momentum. city would contribute 62%, with the and incentivising transit-oriented balance coming up outside the city. Further, there are peripheral markets real estate development. Clearly, this points to two things with prices at `3,000/sq ft, but – first, that the rest of the MMR our analysis indicates a tough localities are driven by employment time for these as well because low

92 93 INDIA REAL ESTATE RESEARCH

MICRO-MARKET SPLIT OF UNDER-CONSTRUCTION UNITS IN H2 2015 PREMIUM MARKET TRENDS

FIGURE 5 PREMIUM MARKET TRENDS

LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) A PERIPHERAL CENTRAL SUBURBS 30% D B 2,000 35,000 E PERIPHERAL WESTERN SUBURBS 19% C 15% 33,000 C NAVI MUMBAI 1,500 F D WESTERN SUBURBS 14% 31,000 E 1,000 CENTRAL SUBURBS 11% G B 29,000

F ` / sq ft THANE 7% 500 G 27,000

CENTRAL MUMBAI 3% Number of unit s H H A SOUTH MUMBAI 1% 0 25,000 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015

Source: Knight Frank Research Note: Premium markets include locations where the average ticket size of a residential unit is above `50 mn, are in close proximity to the central business district of the city and have witnessed new project launches in the preceding three years • With an average house price of of an extremely thin project launch market. `50 mn and above, the premium scenario in H2 2014, wherein only • Besides the factors that impacted markets are select localities spread 121 new units were launched, the overall MMR market, the large across the micro-markets of South compared to the average launch ticket size in these markets made Source: Knight Frank Research Mumbai, Central Mumbai and the rate of close to 1,500 units in H1 buyers draw value proposition Western Suburbs. These markets 2013 and H2 2013 each. parallels with the relatively have also been battling tough • Demand in the premium market affordable markets in the Western market conditions for the last few fell by 17% in H2 2015, compared and Central Suburbs. Even as new years. to same period in the previous launches jumped sixfold, the price • In H2 2015, new launches in this year. Large ticket sizes ensured growth in the premium markets segment jumped by 490% to 714 that the shrinkage in this segment remained muted, at just 2% in H2 units. This happened on the back was bigger than the mainstream 2015 over H2 2014.

• With a 30% share, the Peripheral • The Peripheral Western Suburbs MMR MARKET HEALTH Central Suburbs is the largest ranks second in terms of under- market in the MMR in terms of the construction housing units, with a FIGURE 7 quantum of under-construction 19% share. housing units. QUARTERS TO SELL (QTS) UNSOLD INVENTORY ANALYSIS 16

PREMIUM RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND PRICE TRENDS 14 PREMIUM MARKETS 12

10 MICRO-MARKET PREMIUM LOCATIONS 8 No. of quarters South Mumbai Malabar Hill, Tardeo, Mahalakshmi, Mumbai Central, Walkeshwar 6

4 Central Mumbai Worli, Prabhadevi, Parel, Lower Parel, Dadar MMR CITY 2

Western Suburbs Bandra West, Santacruz, Juhu 0 DEC-13 MAR-1 3 JUNE-14 SEP-14 DEC-14 MAR-1 5 JUN-15 SEP-15 DEC-15

Source: Knight Frank Research

94 95 INDIA REAL ESTATE RESEARCH

RE PRICE MOVEMENT IN SELECT LOCATIONS MICRO-MARKET-WISE QTS VS AGE OF INVENTORY PRICE RANGE IN H2 2015 12 MONTH 6 MONTH LOCATION MICRO-MARKET (`/SQ FT) CHANGE CHANGE ERHERA ESER SRS CERA A Lower Parel Central Mumbai 25,000–36,000 3% 0% CERA SRS SH A A A HAE Worli Central Mumbai 31,000–55,000 -1% -2% ERHERA CERA SRS ESER SRS Ghatkopar Central Suburbs 12,000–22,000 4% 3% Mulund Central Suburbs 10,500–14,000 4% 0%

Powai Central Suburbs 14,000–20,000 6% 3%

Panvel Navi Mumbai 4,500–6,500 -1% 2%

Kharghar Navi Mumbai 6,500–9,500 2% 1%

Vashi Navi Mumbai 10,000–15,000 2% 2%

Badlapur Peripheral Central Suburbs 2,800–3,500 0% 0%

Dombivali Peripheral Central Suburbs 4,500–6,000 1% 0%

A Mira Road Peripheral Western Suburbs 5,500–7,500 0% 0% Virar Peripheral Western Suburbs 4,500–5,500 0% 0% Tardeo South Mumbai 40,000–60,000 0% 0% Ghodbunder Road Thane 6,000–10,000 2% 2% S Source R Naupada Thane 14,000–18,000 2% 2% • The quarters to sell unsold six months, the QTS has come the worst across all markets. On Andheri Western Suburbs 14,000–22,000 3% 0% inventory (QTS) is the number down, mainly on account of the the other hand, Thane and the Bandra (W) Western Suburbs 40,000–60,000 0% 0% of quarters required to exhaust sharp curtailment in new project Peripheral Western Suburbs are Borivali Western Suburbs 11,000–15,000 1% 1% the existing unsold inventory in launches. among the best markets on these Dahisar Western Suburbs 8,500–10,000 3% 2% the market. The existing unsold parameters. • The unsold inventory declined inventory is divided by the average Goregaon Western Suburbs 13,000–15,000 1% 1% from 204,070 units in H2 2014 to • The QTS for the premium markets sales velocity of the preceding 181,151 units in H2 2015, mainly on has remained higher than that of eight quarters in order to arrive at OUTLOOK FOR THE NEXT SIX MONTHS account of the sharp reduction in the MMR. Since these markets the QTS number for that particular new launches. During this period, have larger ticket sizes, it takes quarter. A lower QTS indicates a Projections H1 2015 H1 2016E CHANGE the QTS came down marginally, longer to sell. Against the healthier market. from 12 to 11. A comparison of the backdrop of a 490% jump in new Launches (units) 18,887 16,998 -10% • Against the backdrop of a weak market health of all the micro- project launches in H2 2015, the demand scenario, the QTS for markets of the MMR indicates QTS for premium markets has Absorption (units) 28,446 29,868 5% the MMR saw an increasing that the South Mumbai market increased from 14 in H2 2014 to 17 trend between June 2013 and has been ailing. Its QTS of 17 and in H2 2015. Weighted average price (`/sq ft) 7,994 7,994 0% June 2015. However, in the last age of inventory at 15 quarters is Source: Knight Frank Research • Going forward, infrastructure augment end-user demand in H1 to the same period last year, we PRICE MOVEMENT DURING H2 2015 thrust, the improving office market 2016, resulting in housing sales of forecast a stagnation in property and stable house prices will aid 29,868 units – up 5% compared to prices on account of the large WEIGHTED AVERAGE PRICE MOVEMENT IN PUNE the housing market revival. In the first six months of 2015. unsold inventory and low investor H1 2016, we estimate a modest interest. • On the supply side, even while the improvement in demand and lower uncertainty over Mumbai’s new • Among the micro-markets, Thane, LOCATION PRICE RANGE IN H2 2015 (`/SQ FT) 12 MONTH CHANGE 6 MONTH CHANGE supply coinciding with stagnation development plan is expected the Central Suburbs and the on the price front. to be resolved in H1 2016 and Western Suburbs are expected to MMR 7,994 3% 0% • Investor interest in residential developers gauge higher enquiries, benefit due to attractive project property is expected to remain new project launches, at 16,998 launches and superior connectivity Premium markets 33,100 2% 0% muted on account of suboptimal units, will be 10% lower compared to office locations in Mumbai. returns in comparison to other to H1 2015 on account of unsold • Reeling under the pressure of new launches were reduced prevalent to aid property buying. • The Peripheral Western Suburbs asset classes, such as equity and inventory pressure. a large unsold inventory and a significantly, freebies in terms of will continue to be driven by price- • Barring a few projects that have debt. A gradual improvement in slowdown in sales, developers waivers on levies and preferential • While new launches and conscious homebuyers due to the seen 1–2% price cuts, most the employment outlook, coupled adopted coping strategies to limit location charges are being offered. absorption are estimated to plethora of options available in the markets in the MMR are now with lower consumer inflation and the pressure on prices. While Easy financing schemes are also improve in H1 2016 compared sub-`5 mn ticket size housing. witnessing stagnant prices. housing loan interest rates, would

96 97 INDIA REAL ESTATE RESEARCH

OFFICE MARKET SECTOR ANALYSIS FIGURE 3 MMR OFFICE MARKET STOCK, NEW COMPLETIONS, SECTOR-WISE SPLIT OF ABSORPTION ABSORPTION AND VACANCY TRENDS H2 2014 H1 2015 H2 2015

FIGURE 1 70% OFFICE SPACE STOCK AND VACANCY LEVELS In 2015, demand 60% Surpassing the BFSI STOCK OCCUPIED STOCK VACANCY (RHS) exceeded supply in the 50% 46% sector, the IT/ITeS industry 40% MMR for the first time 140 23% 40% 40% emerged as the top since 2008, as only 5.8 30% occupier of office space 120 26% 26% 22% 24% 22% mn sq ft of new project 20% 100 16% 15% 17% 17% in the MMR, contributing 10% 10% completions were recorded 21% 46% of the demand in H2 80 against an occupier 0 2015, compared to 26% in IT/ITeS BFSI* MANUFACTURING OTHER SERVICES mn sq.ft . 60 demand of 7.5 mn sq ft. 20% H2 2014. Source: Knight Frank Research 40 19% • Surpassing the BFSI sector, the sector generated 122,000 sq ft of 20 IT/ITeS industry emerged as the office demand in H2 2015, led by top occupier of office space in players such as Amazon, Zomato 0 18% H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E the MMR, contributing 46% of the and Toppr. Though miniature in demand in H2 2015, compared to contrast to Bengaluru, their most Source: Knight Frank Research 26% in H2 2014. preferred market, e-commerce enterprises have garnered a bigger FIGURE 2 • The manufacturing sector boosted office space presence in Mumbai, NEW COMPLETIONS AND ABSORPTION its share even further, with leading with their interest primarily in engineering and pharmaceutical NEW COMPLETION ABSORPTION the SBD Central and SBD West companies taking up more space 7.0 business districts. 6.4 in H2 2015, compared to the same 6.0 period last year. 5.0 5.0 4.8 • With an 83% jump in demand, e-commerce raised its head. The 4.0 3.5 2.9 2.5 2.9

mn sq.ft 3.0 2.5 2.3 2.8

2.0

1.0

0 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016E H2 2015 Source: Knight Frank Research • In 2015, demand exceeded supply vacancy level trended down from is a dearth of large-size quality 5.0 for the first time in the MMR since 22.6% in H2 2014 to 20% in H2 office space. With occupiers mn sq.ft. 2008, as only 5.8 mn sq ft of new 2015. interested to sign built to suit (BTS) H2 2014 project completions were recorded facilities, developers are now • With the latest addition, the stock against an occupier demand of opening up to opportunities for the and occupied stock in the MMR 4.8 7.5 mn sq ft. In H2 2015, new development of office buildings stands at 118 mn sq ft and 94 mn. sq.ft. completions comprised 3.5 mn sq to cater to such demand; large IT/ H1 2015 mn sq ft, respectively. At a 20% ft or 45% lower, and absorption ITeS giants signing up in markets vacancy level, which is lower than was at 5 mn sq ft or 3% higher such as Thane and Navi Mumbai H2 2014, the market has a vacant 2.5 than same period last year. being a prime example of this mn sq.ft. stock of 24 mn sq ft. phenomenon. • As a result of the improving • Although the market vacancy demand-supply equation, the appears high at around 20%, there

98 99 INDIA REAL ESTATE RESEARCH

SECTOR ANALYSIS BUSINESS DISTRICT ANALYSIS

FIGURE 4 BUSINESS DISTRICT CLASSIFICATION AVERAGE DEAL SIZE AND NUMBER OF DEALS BUSINESS DISTRICTS MICRO-MARKETS AVERAGE DEAL SIZE (SQ.FT.) NUMBER OF DEALS (RHS) CBD & off-CBD Nariman Point, Cuffe Parade, Ballard Estate, Fort, Mahalaxmi, Worli 40,000 160 Bandra Kurla Complex & off- Bandra Kurla Complex (BKC & BKC, Bandra (E), Kalina and Kalanagar 30,000 120 off-BKC) Central Mumbai Parel, Lower Parel, Dadar, Prabhadevi 20,000 80 sq.ft SBD West Andheri, Jogeshwari, Goregaon, Malad Number of deals 10,000 40 SBD Central Kurla, Ghatkopar, Vikhroli, Kanjurmarg, Powai, Bhandup, Chembur PBD Thane, Airoli, Vashi, Ghansoli, Rabale, Belapur 0 0 H1 2014 H2 2014 H1 2015 H2 2015

Source: Knight Frank Research

SELECT TRANSACTIONS

BUILDING OCCUPIER LOCATION APPROX. AREA (SQ FT)

BTS (Hiranandani Estate) TCS Thane 1,800,000 Godrej BKC Abbott India BKC 445,000 G: Corp Quintiles Thane 150,000 L&T Seawoods SBI Life Insurance Navi Mumbai 130,000 Lighthall Piramal Andheri East 100,000 Umang Shoppers Stop & Hypercity Malad 100,000 Mindspace IDBI Airoli 90,000 Kalpataru Prime CMA CGM Thane 65,000 Aventis House (Sanofi Bldg) Ajanta Pharma Andheri East 60,000 Indiabulls Finance Center Yes Bank Lower Parel 60,000

• The average deal size witnessed a jump of 34%, from 27,700 sq ft in H2 2014 to 37,300 sq ft in H2 2015, though a similar number of deals were closed in both years. • The encouraging growth in deal size took place on account of the few large deals signed by IT/ ITeS and pharmaceutical sector companies.

100 101 INDIA REAL ESTATE RESEARCH

FIGURE 5 RENTAL TREND BUSINESS DISTRICT-WISE ABSORPTION SPLIT

H2 2014 H2 2015 FIGURE 6

60% WEIGHTED AVERAGE RENTAL MOVEMENT 53% 140 50%

130 40% Notwithstanding the dip in 32% 120 30% the weighted average rent, 24% 21%21% 110 owing to the improved

Number of units 20% 20% 16% 14% INR / sq.ft./month demand-supply dynamics, 12% 100 9% 10% 7% 7% office market rents are 3% 2% 90 trending up. 0 CENTRAL CENTRAL NAVI PERIPHERAL PERIPHERAL SOUTH THANE 80 MUMBAI SUBURBS MUMBAI CENTRAL WESTERN MUMBAI H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016E SUBURBS SUBURBS Source: Knight Frank Research Source: Knight Frank Research • The MMR weighted average rent dynamics, office market rents is lower by 12%, from `118 / sq ft / are trending up. Markets such as month in H2 2014 to `104 / sq ft / Thane, Navi Mumbai, Andheri and month in H2 2015. This happened Goregaon witnessed a rent growth on account of the relatively lower of 3% in the last six months. H2 2015 priced PBD witnessing a jump in Premium markets, such as Central its share of absorption from 32% Mumbai and BKC, also witnessed 5.0 to 53% during this period. a rent growth of 2% in the last six mn sq.ft. months. • Notwithstanding the dip in the H2 2014 weighted average rent, owing to 4.8 the improved demand-supply mn. sq.ft. BUSINESS DISTRICT-WISE RENTAL MOVEMENT

RENTAL VALUE RANGE IN H2 2015 6 MONTH BUSINESS DISTRICT 12 MONTH CHANGE (`/SQ FT/MONTH) CHANGE

BKC & off-BKC 210–310 -4% 2%

• The demand share of the PBD CBD & off-CBD 160–260 -2% -2% (Thane and Navi Mumbai) increased from 32% in H2 2014 to Central Mumbai 150–190 0% 2% 53% in H2 2015 on account of the robust demand from the IT/ITeS PBD 50–70 5% 3% industry. SBD Central 80–130 -4% -1% • Central Mumbai has witnessed its share decline from 20% in H2 SBD West 90–130 3% 3% 2014 to 7% in H2 2015, primarily Source: Knight Frank Research on account of the receding office space options.

102 103 INDIA REAL ESTATE RESEARCH

OUTLOOK FOR THE NEXT SIX MONTHS With macroeconomic factors such as the PROJECTIONS H1 2015 H1 2016E CHANGE slowdown in China, which New supply (mn sq ft) 2.3 2.9 26% has impacted global Absorption (mn sq ft) 2.5 2.8 9%

growth, the India office Vacancy (%) 21.9% 19.7%

market is expected to Weighted average rental (` / sq ft / 117 123 5% maintain a business-as- month) Ankita Sood Source: Knight Frank Research usual scenario in H1 2016. Consultant - Research • Government focus, and IT/ITeS and manpower-intensive industry to Knight Frank estimates the manufacturing sector leadership open offices here. The sector’s NCR office leasing to clock will improve the MMR office large share in the latest demand market prospects, going forward. number bodes well and has further approximately 3.5 mn sq New completions will grow by 26% improved the demand outlook. in H1 2016 and absorption will ft in H1 2016 with rentals • Encouragement in the office improve steadily by 9%, translating NCR segment would also occur with firming up at key locations into a lower vacancy level of 19.7% the rising private equity interest compared to 21.9% during the that offer quality office and the shaping up pre-REIT- same period last year. space. launch environment. This will boost • The IT/ITeS sector has been supply-side aspirations to start the largest contributor to the considering new office projects. office demand in India, and the Maharashtra government’s IT/ITeS Policy 2015 is among its latest initiatives to induce this skilled

104 105 INDIA REAL ESTATE RESEARCH

RESIDENTIAL MARKET MICRO-MARKET SPLIT OF RESIDENTIAL LAUNCHES Along with

NCR RESIDENTIAL MARKET LAUNCHES, ABSORPTION macroeconomic factors, • 68% of the total 63,458 units FIGURE 2 AND PRICE TRENDS launched in NCR in 2015 are in policy fallacies, such as MICRO-MARKET SPLIT OF LAUNCHED UNITS Gurgaon and Greater Noida. the opening up of new H2 2014 H1 2015 H2 2015 FIGURE 1 • Backed by the Haryana 60% NCR MARKET TRENDS land for development, government’s Affordable Housing 51% Policy 2013, Gurgaon showed a LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) allotment of group housing 50% 20% increase in new launches 41% 50,000 4,600 41% licences in areas with in 2015, compared to 2014. The 40% 45,000 4,550 policy intends to build group 40,000 no infrastructure, project 30% 27% 27% 35,000 housing projects of a predefined 4,500 Number of unit s 30,000 delays due to litigations size via a private developer, which 18% 20% 17% 17% would be available to buyers at a 14%16%14% 25,000 4,450 ` / sq ft and the liquidity crunch, 12% 20,000 predetermined rate. The stipulated 10% 4,400 Number of unit s 15,000 and stagnant incomes, completion time for projects falling 2% 0% 0% 1% 1% 1% 10,000 4,350 have affected NCR’s real under this category is four years 0 5,000 from the date of the approval of DELHI FARIDABAD GHAZIABAD GREATER GURGAON NOIDA NOIDA 0 4,300 estate appetite adversely. the building plan or obtaining the H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E Source: Knight Frank Research environmental clearance, failing The three-year muted 9,475 units in 2015, compared to of new launches, more than half Source: Knight Frank Research which, there will be no renewal of 11,117 units in 2015. have been category of less than price growth indicates the licence. The projects under `5 mn, indicating a move towards • NCR saw the leanest year in terms also registered a YoY drop of 24% this scheme are not charged • New launches in Greater Noida that residential real affordable options for homebuyers. of new launches since 2010. in new project launches, there was with external development have declined by a significant Matching the trend in H2 2015, a 15% increase in the number of estate is facing a strong charges (EDC) and infrastructure 39% in 2015, compared to 2014. • Dropping to 63,460 units in 2015, 65% of the new launches were in project launches compared to H1 development charges (IDC), thus However, in terms of percentage new launches registered a 20% dip resistance to unattractive the less than `5 mn category. 2015. This marginal increase can making the homes more affordable share, Greater Noida continues YoY compared to 2014. be attributed to the developers and unaffordable prices in than the private market. Gurgaon to be one of the largest markets • Catering mostly to the affordable • Piling-up inventory and a low sales releasing their pent-up supply of NCR. contributed significantly to the new considering the number of new and budget segments, the velocity led developers to restrict new launches into the market. launches in NCR in H2 2015, taking launches in NCR, with a 41% share maximum number of new launches the supply of new launches in up 27% of the overall pie. of the total new launches in H2 in Greater Noida fall in `5 mn • On the other hand, demand in NCR 2015. 2015. category. Keeping up with this is yet to pick up. Approximately • Noida witnessed new launches trend, a massive 88% of the total • Slow sales velocity and delayed 48,800 units were sold in NCR decrease by 15% in 2015, with the • The trend of new launches in NCR new launches in Greater Noida in projects due to litigations in 2015, showing a negligible total number of new launches at suggests that of the total number housing licences in areas with characterised the NCR market in improvement over the 2014 sales no infrastructure, project delays 2015. numbers. The market refused to due to litigations and the liquidity correct itself in the second half of • Taking cognisance of the pace of crunch, and stagnant incomes, 2015 and sales stood at 23,800 sales, developers were pressed have affected NCR’s real estate units in H2 2015. to restrict new launches, resulting appetite adversely. in the thinnest annual supply • However, the market registered a H2 2015 • This three-year muted price observed in NCR. 15% growth in sales in H2 2015 growth indicates that residential compared to the same period in 34,000 • The trend suggests that new real estate is facing a strong price 2014, which can be ascribed to units launches in NCR are on a constant resistance against unattractive and the low base compared to the H2 2014 decline since 2010, with the unaffordable prices in NCR. preceding years. average number of launched units • We forecast this trend to continue coming down from 86,000 in 2010 • Along with the impact of 45,000 in the coming six months and units to 31,700 in 2015. macroeconomic factors, delays in project the weighted average price H1 2015 the delivery of some major large- • Registering a 20% drop in the in NCR to grow slightly, at 2% in scale projects have put buyers in number of units launched, NCR H1 2016, compared to the same NCR on the back foot. 29,460 saw approximately 63,458 units period in 2015. units launched in 2015 compared to • Policy fallacies, such as the 79,577 units in 2014. opening up of new land for development, allotment of group • Though the second half of 2015

106 107 INDIA REAL ESTATE RESEARCH

FIGURE 3 TICKET SIZE SPLIT OF LAUNCHES DURING H2 2015

100% New launches in NCR H2 2015 90% have hit an all-time low, 80% with the thinnest supply of 23,800 70% units residential units in 2015. A 60% H2 2014 50% significant 68% of the total 20,630 40% 63,458 units launched units 30% in NCR in 2015 are in H1 2015 20% Gurgaon and Greater 25,000 10% Noida. While Greater units - < `2.5 MN `2.5 - 5 MN `5 - 7.5 MN `7.5 - 10 MN `10-20 MN Noida has always been

NOIDA GURGAON GREATER NOIDA GHAZIABAD FARIDABAD DELHI NCR’s largest micro-

Source: Knight Frank Research market by virtue of the • Approximately 23,800 units were 64% share of the overall sales in number of units launched, sold in the second half of 2015, H2 2015. H2 2015 were in the `2.5–5 mn 2015, with 79% of the total new compared to 20,630 units in • On the other hand, Gurgaon category. launches falling in the less than `5 Gurgaon saw an increase H2 2014, thus registering a YoY registered a 13% uptick in sales in mn category. increase of 15%; however, with the • Like Greater Noida, the residential in the number of new H2 2015, compared to the same base remaining low, the long-term market of Ghaziabad has also • A substantial 35% of the new period in 2014. Fresh launches launches in 2015 on sustenance of the percentage established itself as an affordable launches in Gurgaon fall in the in New Gurgaon and New Sohna growth is yet to be seen. The sales The looming uncertainty residential choice in NCR, owing `2.5–7.5 mn category. the back of the Haryana have provided buyers with several volume in NCR has remained to its low capital values. Affordable options in the steep price market over project deliveries government’s Affordable muted and the percentage share and mid-segment project launches of Gurgaon, thus giving some of the micro-market has shown and the unaffordability saw a push in Ghaziabad in H2 Housing Policy, 2013. traction to the market. negligible deviation from the past of the existing supply quarters. have depressed buyer MICRO-MARKET-WISE RESIDENTIAL SALES The trend of new launches • Macroeconomic factors, along in NCR suggests that with ambiguity of infrastructure sentiments in NCR. Our completions and developer delays, FIGURE 4 survey findings suggest more than half of the total have adversely affected the NCR MICRO-MARKET SPLIT OF SALES new launches have been market appetite. that there is a growing H2 2014 H1 2015 H2 2015 in the category of less than • Our survey findings suggest that preference among 60% there is a growing preference homebuyers for ready- `5 mn, indicating a move among homebuyers for ready-to- 50% 44% 44% 43% towards affordable options move-in projects or projects where to-move-in projects or 40% there is a certainty of possession projects where there is a for homebuyers. within a year. This growing 30% inclination is a consequence of certainty of possession Number of units 20%20%21% project delays and long gestation 20% 19%19%19% within a year. This is a 15% 15% 14% periods in the completion of infrastructure projects. consequence of project 10% 1% 0% 0% 2% 2% 2% • Affordability has driven sales in the delays and long gestation 0 micro-markets of Greater Noida DELHI FARIDABAD GHAZIABAD GREATER GURGAON NOIDA periods in the completion NOIDA and Ghaziabad, as both markets Source: Knight Frank Research have low capital values. Both of infrastructure projects. markets make up a considerable

108 109 INDIA REAL ESTATE RESEARCH

MICRO-MARKET SPLIT OF UNDER-CONSTRUCTION UNITS IN H2 2015 in proximity to the city centre in after negotiations. The value from the city. Shuttle services, 24x7 NCR hint that the buyers are mostly addition of every rupee spent has ambulances and doctors on call, end users who do not want to become the new sale mantra of all-round security and tie-ups with risk investing in bad products. On some developers. service agencies, such as laundry the price front, due to the overall and housekeeping, are some of Buyer awareness has revived macroeconomic scenario, the the elements that have helped concepts such as ‘habitation market is in a catch-22 situation – developers attract buyer interest in plans’ and ‘customer experience neither is the demand side willing their projects. centres’ in NCR. Such tools to invest nor the supply side ready become increasingly important to bring down costs, though some while attempting to attract developers are offering discounts customers to areas further away A 1% B C DELHI B 3% D FARIDABAD A C GHAZIABAD 14% D GREATER NOIDA 41% E E GURGAON 24% F NOIDA 17%

Source: Knight Frank Research

INFRASTRUCTURE LAG DAMPENS CONSUMER SENTIMENTS

The current real estate market before construction began. This and the completed infrastructure scenario has put stakeholders on was called the infamous pre-launch leads to uninhabited areas – most the back foot. At some places, or soft launch stage. Developers of our urban development is an even ready inventory does not have enticed buyers with discounts on unfortunate consequence of such takers, while elsewhere, end users the final selling rates and gathered mismatches. are not moving in. Theoretically, large sums of money from investors This scenario has caused buyers when a particular area undergoes to fund the project, as well as divert to be more cautious about development, the infrastructure is money to other projects. investing their money. Insights first put in place to form the base, On the other hand, since large suggest that factors such as good followed by real estate, which infrastructure projects involve connectivity, employment and social cashes in on the infrastructure by immense costs and negotiations infrastructure, including schools, developing around it. However, with the inhabitants of village colleges and hospitals, have begun this does not happen in practical settlements in the area, government to command more importance in application. projects usually exceed the time the recent past. The increased When the market was up, committed for completion. This number of queries for ready-to- developers would start selling even mismatch between project delivery move-in apartments and projects

110 111 INDIA REAL ESTATE RESEARCH

PREMIUM RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND PRICE TRENDS NCR MARKET HEALTH The NCR market became overly bullish with a flurry Micro-market Premium locations FIGURE 6 QUARTERS TO SELL (QTS) UNSOLD INVENTORY ANALYSIS of new project launches Gurgaon Sectors 42, 53, 54, 58, 59, 65, Gurgaon–Faridabad Road NCR PREMIUM MARKETS and was headed for Noida Sectors 16 B, 100 35 oversupply in 2010–2012.

30 The demand did not keep FIGURE 5 pace with the supply, 25 PREMIUM MARKET TRENDS which led to the slowdown 20 LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) in residential real estate. 600 17,000 15

INR / sq.ft./mont h NCR has moved from 500 10 a QTS of 15 to 17 in a 400 16,500 5 six-month period due to

300 ` / sq ft 0 sluggish sales velocity, 200 16,000 DEC-13 MAR-14 JUN-14 DEC-14 MAR-14 JUN-15 SEP-15 DEC-15 Number of unit s which has pushed the 100 Source: Knight Frank Research QTS to nearly 5 years. The 0 15,000 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 FIGURE 7 unsold inventory stands

Source: Knight Frank Research MICRO-MARKET-WISE QTS VS AGE OF INVENTORY at approximately 206,030 The average sales velocity Note: Premium markets include locations where the average ticket size of a residential unit DELHI FARIDABAD GHAZIABAD GREATER NOIDA GURGAON NOIDA units as of December in NCR’s premium is above `30 mn, are in close proximity to the central business district of the city and have 18 2015. witnessed new project launches in the preceding three years segment has slowed s 16 down considerably. • The NCR agglomeration comprises • The average sales velocity in the five micro-markets, namely Delhi, premium segment in NCR has 14 Insights suggest that clear Gurgaon, Noida, Greater Noida, slowed down considerably. Insight titles, a shift in lifestyle Faridabad and Ghaziabad, of suggests that clear titles, a shift 12 which Gurgaon and Noida are seen in lifestyle and positive returns are of inventory in quarter and positive returns are as premium markets, with a fresh inducing buyers to buy property 10 inducing buyers to buy inventory above `30 mn. oversees. Buyers that are either Age 8 looking for a second home, have • The slowdown in the NCR property oversees. Buyers children studying abroad or are residential market has hit the 6 that are either looking for looking for a long-term investment premium segment the most. 12 14 16 18 20 22 24 26 28 30 32 34 36 38 are seen exploring this option, Despite there being no new QTS a second home, have which is changing the dynamics of launches in the premium segment Source: Knight Frank Research this segment. children studying abroad in Gurgaon and Noida in 2015, the QTS was pushed to 31 quarters • Reflecting the overall market or are looking for a long- • The quarters to sell unsold • NCR has moved from a QTS of launches and was headed for from 25 quarters in a mere two- sentiment, the weighted average inventory (QTS) is the number 15 to 17 in a six-month period. oversupply in 2010–2012. However, term investment are seen quarter period. price growth in the premium of quarters required to exhaust Though H1 2015 was the leanest demand did not keep pace with segment remains muted in H2 exploring this option, • No new launches in 2015 comes in the existing unsold inventory in half in terms of new launches, the supply, which led to the 2015, compared to the same the wake of weak buyer demand the market. The existing unsold the absence of sales velocity has slowdown in residential real estate. which is changing the period in 2014. for the premium segment, resulting inventory is divided by the average pushed the QTS to nearly 5 years. • Pushed by the affordable and dynamics of this segment. in developers opting to exhaust sales velocity of the preceding The unsold inventory stands at mid-segment demand, Ghaziabad the current inventory instead of eight quarters in order to arrive at approximately 206,030 units till and Greater Noida are NCR’s best blocking capital in high-ticket-size the QTS number for that particular December 2015. performing markets, with a QTS of projects. quarter. A lower QTS indicates a • The market became overly bullish 14 and 15 respectively. healthier market. with a flurry of new project

112 113 INDIA REAL ESTATE RESEARCH

PRICE MOVEMENT DURING H2 2015 OUTLOOK FOR THE NEXT SIX MONTHS

WEIGHTED AVERAGE PRICE MOVEMENT IN NCR Projections H1 2015 H1 2016E Growth PRICE RANGE IN 12 MONTH 6 MONTH LOCATION Launches (units) 29,460 28,000 -5% H2 2015 (`/SQ FT) CHANGE CHANGE Absorption (units) 25,000 26,000 4% NCR 4,578 3% 1% Developers are trying to

Premium markets 16,373 0% -4% Weighted average price (`/sq ft) 4,511 4,580 2% reconnect with buyers Source: Knight Frank Research through exhibitions and attractive payment plans, PRICE MOVEMENT IN SELECT LOCATIONS • The realty market in NCR will • The recent developments in continue to remain muted in the 2015, such as the clearance of but the far-reaching effects PRICE RANGE 12 MONTH 6 MONTH first half of 2016. Knight Frank the Dwarka Expressway litigation LOCATION MICRO-MARKET IN H1 2015 (`/ of these steps on the CHANGE CHANGE estimates sales to plug around in Gurgaon, have had a positive SQ FT) 26,000 units in the coming two impact on the market. With the sales velocity are yet to Yamuna Greater Noida 3,295–3,557 3% 0% quarters. 18-km expressway now completely be seen. Factors such litigation-free, buyer interest in the Expressway • Developers will keep new launches zone is expected to revive. as affordability, ready- in check and we estimate new Sector Chi V Greater Noida 3,448–3,514 2% 2% launches to stay below 30,000 to-move-in properties Sector Pi Greater Noida 3,545–3,576 1% 1% units in the first half of 2016, with with visibility on the stagnation in the weighted average Sector 16 B Greater Noida 3,444–3,497 1% 1% prices. project construction and Sector 78 Noida 5,600–5,627 -1% 0% • Delays in projects have made upcoming infrastructure Sector 70 Noida 4,000–4,083 2% 0% buyers cautious of defaulting will drive sales in the developers. Till they are fully Sector 117 Noida 4,850–4,905 1% 0% convinced, buyers will continue to coming quarters. Sector 131 Noida 5,900–6,000 2% 0% assess projects and developers Sector 37 Gurgaon 5,243–5,600 -4% 0% before purchasing property, and this is where the developers’ brand Sector 49 Gurgaon 7,800–10,900 0% 0% and credibility will come into play. The growth rate of the Sector 67 Gurgaon 9,222–9,255 7% 0% weighted average price Sector 79 Gurgaon 4,500–6,500 -2% 0% has been witnessing a Sector 82 Gurgaon 3,700–5,900 0% 0% downward trend since NH-24 Bypass Ghaziabad 2,842–2,888 3% 2% 2013 and has slowed Raj Nagar Ghaziabad 2,884–2,959 3% 1% down considerably, Extension from 6% in H1 2013 to Crossings NH24 Ghaziabad 3,200–3,242 0% 2% a mere 1% in H2 2015. Sector 37 Faridabad 7,900–8,137 3% 0% The trend suggests that Sector 75 Faridabad 3,550–3,636 1% 1% there has been no major Sector 87 Faridabad 3,448–3,600 1% 0%

price increase in NCR in • The growth rate of the weighted been no major price increase in the past quarters, which average price has been witnessing NCR in the past quarters, which a downward trend since 2013 and reflects a price correction. reflects a price correction. has slowed down considerably, • The price stagnation has also from 6% in H1 2013 to a mere 1% affected the premium segment, in H2 2015. with negligible deviations from the • The trend suggests that there has preceding quarters.

114 115 INDIA REAL ESTATE RESEARCH

OFFICE MARKET SECTOR ANALYSIS Corporate demand outdid the IT/ITeS sector in NCR NCR OFFICE MARKET STOCK, NEW COMPLETIONS, • Corporate demand outdid the IT/ transactions by companies such once again, to emerge ABSORPTION AND VACANCY TRENDS ITeS sector in NCR once again, to as Grofers, Hike and Groupon. emerge as the driving sector for E-commerce is considered a part as the driving sector for office space demand in H2 2015. of the other services sector, since FIGURE 1 retail is the driving factor behind office space demand in H2 OFFICE SPACE STOCK AND VACANCY LEVELS • The other services sector drove the business. office space demand in NCR 2015. The other services The NCR market STOCK OCCUPIED STOCK VACANCY (RHS) during this half, backed by strong • Another segment that saw growth sector drove office space maintained its absorption demand from consulting and in terms of transacted space was 160 22% demand in NCR during appetite in 2015, e-commerce companies, such the manufacturing sector. The 140 21% as Bain Consulting, Boston sector registered a more than this half, backed by strong achieving a total of 7.4 Consulting Group and SpiceJet. double-digit growth in terms of 120 20% transacted space, which increased demand from consulting mn sq ft of absorbed • The second half of 2015 also saw 100 from 0.35 mn sq ft in H2 2014 to and e-commerce office space at the end 19% some large size e-commerce 80 companies. The change

of the year. Driven by mn sq.ft . 18% FIGURE 3 60 SECTOR-WISE SPLIT OF ABSORPTION in the dynamics of the IT corporate demand, 17% 40 H2 2014 H1 2015 H2 2015 sector is responsible for 3.7 mn sq ft of office 20 16% 70% its slowdown, which is space was clocked in 60% 0 15% increasingly emphasising the second half of 2015. H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E 48% 50% 44% 43% on automation, and in turn, However, new project Source: Knight Frank Research 40% 37% leading to a slowdown in FIGURE 2 30%30% completions pushed the 30% NEW COMPLETIONS AND ABSORPTION 22% hiring by larger IT firms, vacancy levels to 21.5%. 20% 14% NEW COMPLETION ABSORPTION 11% 9% thus getting translated 10% 8% 7.0 5% into a dull demand and 0 6.0 IT/ITeS BFSI* MANUFACTURING OTHER SERVICES cautious moves for large

5.0 Source: Knight Frank Research office spaces.

4.0 Note: * BFSI includes BFSI Support Services

mn sq.ft 3.0

2.0

1.0

0 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016E H2 2015

Source: Knight Frank Research • The office stock in NCR stood • In terms of leasing, H2 2015 saw 3.7 mn sq.ft. at 138 mn sq ft till the end of a total of 3.7 mn sq ft of office December 2015, of which 108 mn space transactions. The market H2 2014 sq ft is occupied stock. maintained its absorption appetite, achieving a total of 7.4 mn sq ft 4.1 • The influx of pent-up project of absorbed space at the end of mn. sq.ft. completions in 2015 has been 2015. H1 2015 instrumental in nudging the vacancy levels from 20% in H2 • A pent-up supply of 11.5 mn sq ft 3.7 2014 to 21.5% in H2 2015, with in the NCR market led to a 42% mn sq.ft. micro-markets such as Greater growth in new completions in 2015, Noida contributing significantly to compared to the previous year. the new supply.

116 117 INDIA REAL ESTATE RESEARCH

0.80 mn sq ft in H2 2015. Take- • There was a 27% drop in the total ups by companies such as Vivo transacted space of the IT/ITeS DEAL SIZE ANALYSIS in Greater Noida, Ericsson in sector in H2 2015, compared to Small- to mid-size Noida and Airbus in SBD Delhi the same period in 2014. In terms FIGURE 4 transactions dominated contributed significantly to the of percentage share in the overall AVERAGE DEAL SIZE AND NUMBER OF DEALS sector’s demand in this half. Long NCR transacted space, the sector the leasing activity in NCR facing a slowdown, the impact of is seen to be losing out to the other AVERAGE DEAL SIZE (SQ.FT.) NUMBER OF DEALS (RHS) in H2 2015. Approximately the Make in India campaign on services sector. the sector’s movement is yet to be 40,000 200 57% of the total number seen. of transactions in H2 2015 30,000 150 involved floor plates of less

20,000 100 sq.ft than 12,500 sq ft. Number of deals 10,000 50 QUALITY SPACE COMMANDS PREMIUM However, a few large-sized

0 0 transactions by companies NCR’s economy is driven by buildings; however, since it is the locations within the office complex. H1 2014 H2 2014 H1 2015 H2 2015 such as Vivo, Google, multiple industries – primarily oldest commercial business district Concepts such as preferential Source: Knight Frank Research Reliance Jio and arvato manufacturing, IT/ITeS, small and of NCR and also the political seat, location charges (PLC), which only • Small- to mid-size transactions and more of corporate sector medium enterprises, banking, its importance to offices, especially applied to residential projects, are pushed up the overall dominated the leasing activity in occupancy than the large floor financial services and insurance in the BFSI sector, holds true. now catching up even in the office NCR in H2 2015. Approximately space seeking IT/ITeS sector have absorption levels in the (BFSI), and consulting. While the The business district, however, segment in NCR. 57% of the total number of contributed to the shrinking size of second half of the year. national capital attracts the BFSI lags behind in quality office transactions in H2 2015 involved the office space demand in NCR. Higher floors, floor direction, utilities floor plates of less than 12,500 sq sector, Faridabad and Ghaziabad spaces with large floor plates and • Gurgaon led the tally of the and facilities are all attracting ft. are perceived to be manufacturing associated infrastructure facilities. number of deals once again, with occupiers looking for a ‘sense of and industrial towns, and Noida and On the other hand, the peripheral • The average transacted space 54% of the 175 deals in H2 2015, address and extravagance’. Going Gurgaon are driven by the IT/ITeS business districts of Noida and came down significantly, to 21,000 followed by 39 deal conversions forward, this trend is seen to be sq ft in H2 2015, from 35,600 in the peripheral business district sector. Gurgaon attract corporate and IT/ backed by corporate occupiers, sq ft in H2 2014, registering a of Noida and 28 deals in the ITeS companies that are looking However, over the past few years, international financial institutions drop of 41%. Factors such as secondary business district of for quality office spaces and well- the IT/ITeS and other services and the other services sector. the macroeconomic slowdown, Delhi, in locations such as Aerocity developed infrastructure that gives cautious expansion plans and Jasola. sectors have emerged as the largest them the ease of business. employers in NCR, thereby evolving as the biggest drivers of the city’s Insights suggest that lately, office market, which is evident occupiers across business districts SELECT TRANSACTIONS from the year-over-year absorption are willing to pay more for good trends. With a current office stock quality office spaces, which OCCUPIER BUILDING LOCATION APPROX. AREA (SQ FT) of 138 mn sq ft and a vacancy of resulted in high-value transactions Vivo World Trade Centre Tech Zone – 1, Greater Noida 293,000 21.5% as of H2 2015, NCR’s office in 2015. The swift leasing of some Google Signature Towers II NH-8, Gurgaon 207,161 market is second only to Bangalore. prime office buildings, such as Since many industries drive the One Horizon Centre and DLF arvato India Phase V Udyog Vihar, Gurgaon 100,000 office market in NCR, the office Two Horizon Centre in Gurgaon, SpiceJet Phase IV Udyog Vihar, Gurgaon 100,000 footprint is a mixture of all types of Red Fort Capital in CBD Delhi Ernst & Young Worldmark Aerocity, SBD Delhi 98,000 building construction specifications and Worldmark in Aerocity, bears that vary across the business testament to the demand for quality Reliance Jio Logix Cyber Park Sector 62, Noida 92,000 districts of this agglomeration. office spaces in NCR. Today, Boston Consulting Group Building 9 A DLF Cyber City, Gurgaon 80,000 occupiers are willing to spend For instance, the National Capital Mercer ASF Insignia Gwal Pahari, Gurgaon 69,000 the extra buck, not only for prime Territory (NCT) of Delhi, which forms Groupon Paras Twin Towers – A Golf Course Road, Gurgaon 61,410 office real estate but also for choice the CBD of NCR, has several old IGATE Infospace 2 Sector 135, Noida 60,000

118 119 INDIA REAL ESTATE RESEARCH

OCCUPIER BUILDING LOCATION APPROX. AREA (SQ FT)

Hike Worldmark Aerocity, SBD Delhi 59,585 Bain Consulting DLF Building 8 DLF Cyber City, Gurgaon 52,000 H2 2015 Grofers Plot 81 Sector 32, Gurgaon 50,000 UrbanClap Sector 18 Udyog Vihar, Gurgaon 35,000 3.7 mn sq.ft. Uber One Horizon Centre Golf Course Road, Gurgaon 33,000 H2 2014 PWC Building 8C DLF Cyber City, Gurgaon 30,647 Airbus Worldmark Aerocity, SBD Delhi 30,000 4.1 mn. sq.ft. Gaadi.com Plot No. 49 Sector 44, Gurgaon 25,000 Delhivery Veritas Tower Golf Course Road, Gurgaon 12,000 Cisco System Pvt Ltd EastTower Barakhamba Road, CBD Delhi 7,650

Source: Knight Frank Research

BUSINESS DISTRICT ANALYSIS

BUSINESS DISTRICT CLASSIFICATION

BUSINESS DISTRICTS MICRO-MARKETS

CBD Delhi Connaught Place, Barakhamba Road, Kasturba Gandhi Marg and Minto Road

SBD Delhi Nehru Place, Saket, Jasola, Bhikaji Cama Place, Mohan Cooperative and Aerocity

PBD Gurgaon Zone A MG Road, NH-8, Golf Course Road and Golf Course Extension Road PBD Gurgaon Zone B DLF Cyber City, Sohna Road, Udyog Vihar and Gwal Pahari PBD Gurgaon Zone C Manesar Noida Sectors 16, 18, 62, 63 and the Noida–Greater Noida Expressway Faridabad Sector Alpha, Beta, Gamma and Tech Zone

FIGURE 5 BUSINESS DISTRICT-WISE ABSORPTION SPLIT

H2 2014 H1 2015 61% 60% 56%

50%

40%

30%

Number of unit s 23% 23% 20%

13%10% 10% 8% 3% 2% 0% 1% 0% 0 CBD PDB PBD PBD SBD PBD- GREATER DELHI FARIDABAD GURGAON NOIDA DELHI NOIDA Source: Knight Frank Research

120 121 INDIA REAL ESTATE RESEARCH

GURGAON NOIDA BUSINESS DISTRICT-WISE RENTAL MOVEMENT • PBD Gurgaon emerged as the • Leasing activity in Noida continued most preferred business district in to be dull in H2 2015. In terms RENTAL VALUE RANGE IN H2 2015 6 MONTH BUSINESS DISTRICT 12 MONTH CHANGE NCR once again, taking up 56% of of transacted space, this micro- (`/SQ FT/MONTH) CHANGE the total absorption pie of 3.7 mn market registered a 9% drop sq ft in H2 2015. in leased space in H2 2015, CBD Delhi 208–350 4% 1% compared to the same period in • The market also registered an 2014. SBD Delhi 93–163 3% 4% increase of 51% in the number While commercial office of deals over the same period in • Unlike Gurgaon, IT/ITeS drove PBD Gurgaon Zone A 94–159 18% 5% 2014, with a marginal decline in the leasing activity in Noida in H2 2015, demand drove leasing in average transaction size. taking up 57% of the total 0.85 PBD Gurgaon Zone B 63–134 7% 5% mn sq ft leased in this peripheral the peripheral business • Office space in Gurgaon is driven business district. Companies such primarily by the quality office PBD Gurgaon Zone C 25–35 0% 0% district of Gurgaon, as Fidelity, Reliance Jio, SafeNet space offered, which agrees with and IGATE were among the major Noida continues to the needs of the occupiers. Noida 44–64 10% 1% occupiers in this sector in H2 2015. be a preferred office • Some of the locations that saw Faridabad 45–55 0% 0% major traction in Gurgaon in H2 space for the IT/ITeS Source: Knight Frank Research 2015 are DLF Cyber City and M. G. CBD AND SBD DELHI sector. The secondary Road. Approximately 40% of the • Leasing activity in CBD Delhi was • Though new completions have 2014 to `64 per sq ft per month in • However, quality office space in 95 deal closures in Gurgaon in H2 business district of Delhi concentrated around Barakhamba pushed up the overall vacancy H2 2015. micro-markets such as Gurgaon is 2015 were concentrated in these Road and Bhai Veer Singh Marg, rates in NCR, the weighted average expected to witness a significant saw some movement in locations. • Going forward, we expect the with eBay, ICICI Lombard, IFCI rentals seem to be firming up in the upward pressure on price. weighted average rentals to • The other services sector Limited and Cisco taking up region. the second half of 2015, increase by 5% from the current dominated the Gurgaon leasing spaces in the area. with notable companies • The weighted average rental values values in H2 2015, to around `67 activity yet again, with more • Aerocity in SBD Delhi saw some witnessed a sharp 11% increase, per sq ft per month in H1 2016. taking up space in than half of the total leasing in movement in the second half of from `58 per sq ft per month in H2 Gurgaon driven by consulting and Worldmark. 2015, with notable companies such e-commerce companies, such as Ernst & Young, Hike, Airbus and as PWC, Uber, Bain Consulting, Bharti Softbank taking up spaces OUTLOOK FOR THE NEXT SIX MONTHS Boston Consulting, Deloitte, in Worldmark. SpiceJet, Groupon, OYO Rooms, UrbanClap, Grofers and Delhivery. PROJECTIONS H1 2015 H1 2016E GROWTH Despite macroeconomic New supply (mn sq ft) 5.5 4.5 -18% factors, such as the RENTAL TREND Absorption (mn sq ft) 3.7 3.5 -5% slowdown in China, which Vacancy (%) 20.7% 21.5% has impacted global

FIGURE 6 Weighted average rental (`/sq ft/ growth, the India office 62 67 9% WEIGHTED AVERAGE RENTAL MOVEMENT month) market is expected to Source: Knight Frank Research 68 maintain a business-as- 66 • With macroeconomic factors such • Going forward, we expect the usual scenario in H1 2016. 64 as the slowdown in China, which NCR office market to sustain its Knight Frank estimates the 62 has impacted global growth, the half-yearly momentum in H1 2016, India office market is expected and envisage the absorption of 60 NCR office leasing to clock to maintain a business-as-usual approximately 3.5 mn sq ft. approximately 3.5 mn sq 58 scenario in H1 2016.

INR / sq.ft./month • New completions will continue to 56 ft in H1 2016, with rentals • The slowdown in the pump approximately 4–5 mn sq 54 manufacturing sector has been ft in the market, which will lead to firming up at key locations 52 plaguing the country for a long an increase in the overall vacancy that offer quality office time now, and the impact of rates. 50 H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016E government initiatives, such as the space. Make in India campaign, are yet to Source: Knight Frank Research be seen.

122 123 INDIA REAL ESTATE RESEARCH

RESIDENTIAL MARKET

PUNE RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND PRICE TRENDS

FIGURE 1 PUNE MARKET TRENDS Hetal Bachkaniwala LAUNCHES ABSORPTION WT. AVG. PRICE (RHS) Vice President - Research 25,000 5,000

20,000

4,800 15,000 ` / sq ft 10,000 4,600

PUNE Number of unit s 5,000

0 4,400 New launches are still H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E commanding old prices. Source: Knight Frank Research The majority of the new • 2015 was the best time to buy • Nonetheless, new launches are launches in H2 2015 are property in Pune, as the steady still commanding old prices. The sales volume and stagnant majority of the new launches in H2 in price ranges similar to price growth provided an ideal 2015 are in price ranges similar to those of H1 2015. opportunity for homebuyers. those of H1 2015. • While the sales volume grew • The price growth in Pune has marginally, by 4% in 2015 fallen from above 12% to less than compared to the previous year, 2% over the last three years. This new launches dropped by 8% consistent drop in price growth during the same period. presents a good opportunity for homebuyers to buy property. • However, encouraged by the Going forward, we do not expect consistent growth in sales volume, prices to rise significantly, and developers were back in action hence, continue to recommend during H2 2015. New launches that buyers take advantage of this increased by 9% during H2 2015 scenario. compared to H2 2014.

MICRO-MARKET SPLIT OF RESIDENTIAL LAUNCHES

• South Pune has witnessed • North Pune’s share has been • North Pune continues to remain renewed interest from the falling gradually from the last the most affordable market in the developer community, with its year, as the existing under- city, as 93% of the new launches in share in the total new launches construction projects are yet to H2 2015 were below the ticket size increasing steadily since H2 2014. offload a significant portion of of `5 mn. Central Pune is the least Undri, Pisoli, Sinhgad Road and their inventory. This has led to affordable market, as more than Kondhwa Road are some of the most of the developers in this area 85% of the new launches in H2 locations in South Pune that have postponing new project launches 2015 were above the ticket size of recorded new launches during the for the coming six months. `10 mn. last six months.

124 125 INDIA REAL ESTATE RESEARCH

FIGURE 2 MICRO-MARKET SPLIT OF LAUNCHED UNITS MICRO-MARKET-WISE RESIDENTIAL SALES H2 2014 H1 2015 H2 2015 MICRO MARKETS OF PUNE 45% 40% 40% MICRO-MARKET LOCATIONS 35% 32% 32% 30% Central Koregaon Park, Boat Club Road, Erandwane, Deccan, Kothrud, Model Colony 30% 29%

25% 24% 22% East Viman Nagar, Kharadi, Wagholi, Hadapsar, Dhanori 20% 20% 17% 19% 15% West Aundh, Baner, Wakad, Hinjewadi, Bavdhan, Pashan 15% 13%

10% North Pimpri, Chinchwad, Moshi, Chikhali, Chakan, Talegaon 5% 4% South Kondhwa, Ambegaon, Undri, Dhayari, Warje, Sinhgad Road North Pune continues to 2% 1% 0% remain the most affordable CENTRAL EAST WEST NORTH SOUTH market in the city, as 93% Source: Knight Frank Research

of the new launches in H2 FIGURE 3 2015 were below the ticket TICKET SIZE SPLIT OF LAUNCHES DURING H2 2015 size of `5 mn. Central 100% Pune is the least affordable 90% market, as more than 85% 80% 70% of the new launches in H2 60%

2015 were above the ticket 50%

size of `10 mn 40%

30%

20%

10%

- < 2.5 MN 2.5 - 5 MN 5 - 7.5 MN 7.5 - 10 MN 10 - 20 MN >20 MN

CENTRAL EAST WEST NORTH SOUTH

Source: Knight Frank Research

H2 2015 18,135 units H2 2014 16,700 units H1 2015 12,760 units

126 127 INDIA REAL ESTATE RESEARCH

• The micro-market split of FIGURE 4 absorption has not witnessed any MICRO-MARKET SPLIT OF SALES PREMIUM RESIDENTIAL MARKET LAUNCHES, ABSORPTION AND PRICE TRENDS significant change in the last six H2 2014 H1 2015 H2 2015 months. While the shares of East 45% and West Pune have increased Micro-market Premium locations 40% marginally since H2 2014, North Bhosale Nagar, Boat Club Road, Erandwane, Koregaon Park, Model Colony, Prabhat Pune’s share has reduced slightly. Central 35% Road, Uday Baug 30% 30% • Central Pune’s share in the total 26%26% 26%27% 25% 25% 23%23% 24% 24% absorption has come down East Kalyani Nagar, Viman Nagar 22% marginally during H2 2015. This 20% 18% South Salisbury Park could be a worrying trend for 15% developers operating in this 10% market, as the unsold inventory 5% 2% 2% 1% will increase further in the coming 0% months. PREMIUM MARKET TRENDS CENTRAL EAST WEST NORTH SOUTH

Source: Knight Frank Research FIGURE 5 PREMIUM MARKET TRENDS

LAUNCHES ABSORPTION WT. AVG. PRICE (RHS)

600 13,000

H2 2015 500 12,500 20,740 400 12,000 units 300 11,500 ` / sq ft

H2 2014 200 11,000

20,150 Number of units 100 10,500 units 0 10,000 H1 2015 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 15,520 Source: Knight Frank Research units Note: Premium markets include locations where the average ticket size of a residential unit is above `20 mn, are in close proximity to the central business district of the city and have witnessed new project launches in the preceding three years

• The premium market of Pune, which constitutes locations such MICRO-MARKET SPLIT OF UNDER-CONSTRUCTION UNITS AS OF DECEMBER 2015 as Koregaon Park, Model Colony, Boat Club Road and Bhosale Nagar, among others, has been • Central Pune currently accounts witnessing a lower number of new for only 2% of the total under- launches with each passing period With a steady sales construction units in the city, as since 2014, and H2 2015 recorded the majority of the new projects no new launches. volume and receding are being launched in the rest of • However, the sales volume has new launches, the A the city. CENTRAL 2% remained steady, in the range of unsold inventory B • The maximum under-construction 180 – 220 units for each of the half- EAST 27% units are in East and West Pune. yearly periods since 2014. With pressure in the premium C 27% This is followed by South and steady sales volume and receding market has reduced C WEST North Pune, at 24% and 20%, new launches, the unsold inventory B D D 20% respectively. pressure in the premium market significantly in the last NORTH has reduced significantly in the last A E two years. E two years. SOUTH 24% Source: Knight Frank Research

128 129 INDIA REAL ESTATE RESEARCH

PUNE MARKET HEALTH SOUTH PUNE HAS WITNESSED A PHENOMENAL RECOVERY, LED BY MID-SEGMENT HOUSING FIGURE 6 QUARTERS TO SELL (QTS) UNSOLD INVENTORY ANALYSIS South Pune, with locations such as inventory available in the market. employed in these hubs. This has Ambegaon, Undri, Dhayari, Warje helped in maintaining end-user 13 PUNE PREMIUM MARKETS Secondly, the ticket sizes of the and Sinhgad Road, has witnessed interest in this market. With a steady launched units were brought down 12 a phenomenal recovery in the last demand on the back of the factors A steady sales volume, to relatively affordable levels in two years. This zone had an unsold mentioned above as well as falling 11 2015. While only 73% of the newly- fewer new launches inventory of more than nine quarters launches, the stress in the market 10 launched units in 2014 were below in H1 2014, which came down to less has reduced considerably over the and lower ticket sizes the ticket size of `7.5 mn, it stood 9 than six quarters by H2 2015. There last two years. While the rest of the at 90% in 2015. The push towards have helped South Pune are three major reasons for this zones in the city have also witnessed 8 budget and mid-segment projects

No. of Quarters recovery in the market: a fall in unsold inventory levels, it is improve its performance 7 seems to be working in favour of the not to the extent observed in South Firstly, the surge in new launches market, as demand has witnessed a compared to the city’s 6 Pune. This has aided South Pune’s from 2010 to 2013 by developers marginal recovery during the year. remarkable recovery from being one other zones. The 5 had led to a significant pile-up in Lastly, easy access from South of the worst performing markets of 4 inventory by the end of 2013. While advantage of being located Pune to the employment hubs of the city to one of the best. DEC-13 MAR-14 JUN-14 DEC-14 MAR-15 JUN-15 SEP-15 DEC-15 developers continued to push new Hinjewadi in the west and Kharadi between the two major project launches, the sales volume Source: Knight Frank Research and Hadapsar in the east places remained sluggish, leading to a huge employment hubs of the zone in a strategic position. inventory overhang. Realising the FIGURE 7 These employment hubs are within Hinjewadi in the west and perils of such a scenario, developers MICRO-MARKET-WISE QTS VS AGE OF INVENTORY a 30-minute drive from most of the curtailed new launches by 25% and the Hadapsar-Kharadi belt residential locations of South Pune 39% year over year (YOY) during CENTRAL EAST WEST NORTH SOUTH and hence, have become preferred in the east has sustained 2014 and 2015, respectively. This led residential destinations for people homebuyer interest in this 11 to a sharp drop in the total unsold

zone. 10 PRICE MOVEMENT DURING H2 2015 9

• The price growth across most 8 WEIGHTED AVERAGE PRICE MOVEMENT IN PUNE locations in Pune during the last 12 months has been tepid. It Age of unsold inventory in quarters PRICE RANGE IN 12 MONTH 6 MONTH 7 LOCATION has slowed down further in the H2 2015 ( /SQ FT) CHANGE CHANGE ` last six months, primarily due to 6 Pune 4,835 1.8% 0.3% the subdued sales volume and 57911 the huge unsold inventory in the Premium markets 12,580 3.1% 1.6% market. QTS Source: Knight Frank Research • The weighted average price growth has been much faster in the PRICE MOVEMENT IN SELECT LOCATIONS • South Pune witnessed a its performance compared to the of the incremental employment premium segment in the last 12 phenomenal recovery in the city’s other zones. The advantage generation in Hinjewadi and months compared to the growth MICRO- PRICE RANGE IN 12 MONTH 6 MONTH last two years. One of the worst of being located between the Wakad, has helped this zone LOCATION in the city’s overall price. However, MARKET H2 2015 (`/SQ FT) CHANGE CHANGE performing zones in H1 2014, it two major employment hubs of sustain in terms of sales volume. this has moderated to a mere 1.6% has emerged as one of the best Hinjewadi in the west and the Koregaon Park Central 13,000 - 17,000 0% 0% in the previous six months. • The situation in Central Pune has performing markets in H2 2015. Hadapsar-Kharadi belt in the east worsened, as the sales volume Kothrud Central 7,500 - 13,000 0% 0% The QTS (quarters to sell unsold has sustained homebuyer interest in this zone has been falling inventory) has fallen from 9 in H1 in this zone. Erandwane Central 13,500 - 18,000 0% 0% consistently since 2013. Higher 2014 to less than 5.7 in H2 2015. • West Pune continues to be the ticket sizes and a lack of investor Boat Club Road Central 14,500 - 19,500 0% 0% • A steady sales volume, fewer new best performing zone in Pune, interest have resulted in Central Kharadi East 5,300 - 6,300 2% 2% launches and lower ticket sizes with a QTS of 5.7 in H2 2015. Pune’s poor performance. have helped South Pune improve Strong demand, on the back Wagholi East 3,500 - 4,600 2% 2%

130 131 INDIA REAL ESTATE RESEARCH

Dhanori East 3,900 - 4,800 0% 0%

Hadapsar East 4,600 - 6,000 3% 3% OFFICE MARKET Aundh West 7,800 - 9,500 3% 3% PUNE OFFICE MARKET STOCK, NEW COMPLETIONS, Baner West 5,600 - 8,000 0% 0% ABSORPTION AND VACANCY TRENDS Hinjewadi West 4,800 - 5,900 5% 5% FIGURE 1 Wakad West 5,400 - 6,200 0% 0% The expected revisions in OFFICE SPACE STOCK AND VACANCY LEVELS

the development control Moshi North 3,700 - 4,300 0% 0% STOCK OCCUPIED STOCK VACANCY (RHS) regulations (DCR) in the Chikhali North 3,500 - 4,100 2% 2% 70 25%

coming six months will Chakan North 2,900 - 3,400 3% 3% 60 20% slow down the quantum Ambegaon South 4,400 - 5,500 0% 0% 50 Undri South 3,900 - 4,800 2% 2% of new launches, as 15% 40 developers are awaiting Kondhwa South 4,600 - 5,700 2% 2%

mn sq.ft. 30 clarity on the subject. We Source: Knight Frank Research 10% estimate new launches 20 With demand 5% to grow by 9% during H1 OUTLOOK FOR THE NEXT SIX MONTHS 10 consistently outstripping

2016 compared to the 0 0% supply, vacancy levels H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E same period in preceding Projections H1 2015 H1 2016E Growth witnessed a free fall, Source: Knight Frank Research year. Launches (units) 12,760 13,900 9% from 16.5% in 2014 to FIGURE 2 10.8% in 2015 Absorption (units) 15,520 16,450 6% NEW COMPLETIONS AND ABSORPTION

NEW COMPLETION ABSORPTION Weighted average price (`/sq ft) 4,820 4,880 1%

Source: Knight Frank Research 3.5 3.0

• The expected revisions in the watch mode, and are expecting 2.5 development control regulations further positive signs on the 2.0 (DCR) in the coming six months country’s economic front. mn sq.ft will slow down the quantum of 1.5 • We estimate that West and new launches, as developers are 1.0 East Pune will witness a higher awaiting clarity on the subject. We traction in sales volume in the 0.5 estimate new launches to grow by coming months, as the lack of 9% during H1 2016 compared to 0 a mass rapid transit system will H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 E the same period in the preceding continue to push homebuyers year. Source: Knight Frank Research towards locations that are in close • West and East Pune will continue proximity to the employment • Office space demand in Pune delivered during 2014. Northern Trust Bank, various mid- to dominate in terms of new hubs in these zones. The delay continues to outstrip new size deals by IT/ITeS companies • With demand consistently launches, as proximity to the in commencing the construction completions for the fourth straight seem to have helped in pushing outstripping supply, vacancy levels employment hubs of Hinjewadi and work of the metro project has year. 2015 recorded 5.5 mn sq ft of the absorption numbers to this witnessed a free fall, from 16.5% in Kharadi make these micro-markets made homebuyers averse to areas absorption, which was 22% higher level. 2014 to 10.8% in 2015. attractive for developers to launch that are at a greater distance from than the 4.5 mn sq ft mark in 2014. • On the other hand, new new projects. Hinjewadi, Kharadi and Hadapsar. • H2 2015 recorded one of the • In terms of new completions, completions have remained highest absorptions, at 3.3 mn sq • However, the growth in the city’s only 2.7 mn sq ft of office space tepid at 1.1 mn sq ft in H2 2015. ft. This was 39% higher than H2 sales volume will be limited to was delivered during the year, led Although this is more than double 2014, when 2.4 mn sq ft of space 6% during H1 2016 compared by Blue Ridge in Hinjewadi and the 0.5 mn sq ft achieved during was absorbed. Apart from certain to the same period last year, as Commerzone in Yerwada. This was H2 2014, it is still considerably large-size deals by companies homebuyers are still in a wait-and- higher by 6% from the 2.5 mn sq ft lower compared to the absorption. such as HSBC, Siemens and

132 133 INDIA REAL ESTATE RESEARCH

SECTOR ANALYSIS DEAL SIZE ANALYSIS

FIGURE 3 FIGURE 4 SECTOR-WISE SPLIT OF ABSORPTION AVERAGE DEAL SIZE AND NUMBER OF DEALS H2 2014 H1 2015 H2 2015 AVERAGE DEAL SIZE (SQ.FT.) NUMBER OF DEALS (RHS) 70% 62% 60% 60,000 120

50% 47% 50,000

40% 40,000 80 32% 30,000 30% 27% sq.ft The IT/ITeS sector 25% 23% 23%

18% Number of deals 20% 17% 20,000 40 continues to remain the 12% 11% 10% 10,000 biggest driver of office 4% space in Pune, with a 0 0 0 IT/ITeS BFSI* MANUFACTURING OTHER SERVICES H1 2014 H2 2014 H1 2015 H2 2015 The shares of the CBD 47% share in H2 2015. Source: Knight Frank Research Source: Knight Frank Research & off-CBD markets have However, its share is Note: BFSI includes BFSI support services increased during H2 2015 relatively lower than in • The average deal size in H2 2015 • The BFSI sector led in terms of • The revival in manufacturing services, which, in other words, are compared to H2 2014, as 2014, as the uptake of was reported to be 39,700 sq ft, big-ticket deals, the majority of activity as a result of the ‘Make in closely linked to the IT/ITeS sector. which is similar to the H1 2015 them being in the range of 50,000 India’ initiative by the Government S. B. Road continues to office space from the rest • The IT/ITeS sector continues to level. This, despite the fact that sq ft and above. The space leased of India and the improvement remain the biggest driver of office the number of deals increased by most of the companies in this witness traction in office of the sectors continues to in business sentiment in the space in Pune, with a 47% share significantly in H2 2015, indicating sector is for their back office IT/ corporate sector seem to have space absorption. grow. in H2 2015. However, its share is that most of the tenants are ITeS-related operations. maintained the office space take- relatively lower than that in 2014, choosing to lease larger space. up by Pune’s manufacturing sector. as the uptake of office space from • The shares of the BFSI sector the rest of the sectors continues to SELECT TRANSACTIONS continue to hold steady, at 23%, grow. although this is lower than the 25% OCCUPIER BUILDING LOCATION APPROX. AREA (SQ FT) share it reported during H1 2015. However, the majority of the deals Siemens Cummins Building Campus Balewadi 342,000 in the BFSI sector are support HSBC Raheja Woods Kalyani Nagar 335,000 MasterCard Business Bay Yerwada 100,000 Northern Trust Bank Tech Park One Yerwada 100,000 BNY Melon Commerzone Yerwada 90,000 H2 2015 Concentrix Tech Park One Yerwada 80,000 3.3 Saama Technology Blue Ridge Hinjewadi 70,000 mn sq.ft. All states SP Infocity Phursungi 55,000 H2 2014 Deutsche Bank Business Bay Yerwada 54,000 2.4 Johnson Control Commerzone Yerwada 50,000 mn. sq.ft. H1 2015 Tata Technologies Blue Ridge Hinjewadi 48,500 2.2 Varian Medical Systems Magarpatta Hadapsar 44,000 mn sq.ft. R Systems DTC Erandwane 42,000 TCS Suzlon Campus Hadapsar 30,000

Source: Knight Frank Research

134 135 INDIA REAL ESTATE RESEARCH

BUSINESS DISTRICT ANALYSIS FIGURE 5 BUSINESS DISTRICT-WISE ABSORPTION SPLIT

H2 2014 H2 2015 BUSINESS DISTRICT MICRO-MARKETS CBD and off-CBD Bund Garden Road, S B Road, Camp, Deccan, University Road, Shankar Sheth Road 50% 47% 45% 44% SBD East Kalyani Nagar, Yerwada, Nagar Road, Vishrantwadi, Hadapsar 40% PBD East Kharadi, Phursungi, Wanowrie 35% 30% 30% SBD West Wakdewadi, Aundh, Baner, Kothrud, Balewadi 25% 20% PBD West Hinjewadi, Bavdhan, Wakad 20% 17% 15% 15% 10% 8% 8% 8% 5% 3% 0 CBD & Off-CBD SBD East SBD West PBD East PBD West

Source: Knight Frank Research

H2 2015 3.3 mn sq.ft. H2 2014 2.4 mn. sq.ft.

• The shares of the CBD & off-CBD • Limited supply of vacant office markets have increased during and relatively high rentals have Since no new major office H2 2015 compared to H2 2014, as restricted the absorption levels in S. B. Road continues to witness PBD East, with its share coming projects are expected traction in office space absorption. down from 30% in H2 2014 to to be completed in the 8% in H2 2015. Similarly, PBD • Yerwada continues to consolidate West’s share has also dropped coming six months, its position as one of the largest significantly in the last six months, office space hubs in the city, vacancy levels will witness although this is primarily due to helping SBD East in increasing a jump in SBD West’s share, a further fall to the single- its share in the total office space which otherwise would have been absorption during H2 2015. digit level. absorbed by the PBD West market. Proximity to the city centre and easy access to the airport have resulted in occupiers preferring this location.

136 137 INDIA REAL ESTATE RESEARCH

BUSINESS DISTRICT-WISE RENTAL MOVEMENT SHORTAGE OF READY-TO-OCCUPY SPACE IN PUNE COULD PUSH OCCUPIERS TO RENTAL VALUE RANGE IN H2 2015 (`/SQ 6 MONTH BUSINESS DISTRICT 12 MONTH CHANGE OTHER CITIES FT/MONTH) CHANGE CBD & off-CBD 70 - 110 19% 10% Vacancy levels in Pune have been any income on such assets and This undersupply situation is falling consistently since 2012, from the residential market witnessing expected to worsen in 2016, as only SBD East 55 - 85 22% 17% 23.4% to less than 11% currently. a steady recovery post 2010, their 2.7 mn sq ft of new space is expected SBD West 60 - 90 19% 12% With demand outstripping new focus shifted from the commercial to to be delivered. We anticipate that supply for the fourth consecutive the residential segment. the demand for space will far exceed PBD East 55 - 85 24% 20% year, the situation has only worsened the supply, and this will lead to a Since 2011, 20.2 mn sq ft of space has PBD West 40 - 58 12% 9% for occupiers, who are unable situation wherein occupiers will have been absorbed in Pune, in contrast Source: Knight Frank Research to find leasable space in their to look for space in other cities. With to the 14.6 mn sq ft of new space preferred locations. The genesis of Bengaluru and Gurgaon in a similar delivered. The shift in developers the current predicament lies in the state of affairs, we believe that focus towards residential housing heydays of the pre-2008 period, occupiers will be pushed towards led to a limited number of new OUTLOOK FOR THE NEXT SIX MONTHS when strong demand from the IT/ cities such as Hyderabad, Chennai project launches in the office space ITeS sector encouraged developers and Noida. Additionally, some segment post 2010, and the result is to aggressively build new office occupiers may also prefer moving PROJECTIONS H1 2015 H1 2016E Growth seen in the current situation, wherein space. However, the Global Financial to Navi Mumbai, which offers a there are no major completed New completions (mn sq ft) 1.54 0.86 -44% Crisis (GFC) of 2008 resulted in an similar occupancy cost. While such a projects available for lease. Even the oversupply situation, with a huge scenario would be a loss to the Pune Absorption (mn sq ft) 2.16 2.33 8% existing 11% vacancy is largely in the amount of ready-to-occupy space market, it will give a significant boost peripheral business districts (PBD), Vacancy 15% 8% remaining vacant from 2008 to 2010 to the already thriving office markets with the prime areas having a near- due to a lack of occupier demand. of Hyderabad, Chennai, Noida and Weighted average rent (`/sq ft/month) 50 61 22% zero vacancy level. With developers unable to earn Navi Mumbai. Source: Knight Frank Research

RENTAL TREND • Going forward, while absorption is expected to increase 8% compared to its H1 2015 level of • Rental values have been rising 2.16 mn sq ft, new completions FIGURE 4 steadily since 2013, as demand are estimated to drop further in H1 WEIGHTED AVERAGE RENTAL MOVEMENT continues to surpass new supply. 2016, by 44% to 0.86 mn sq ft. 65 Currently, the weighted average • Since no new major office projects rent in Pune is around `56 per sq ft are expected to be completed in 60 per month - 44% higher than in H1 the coming six months, vacancy 2013. levels will witness a further fall to 55 • Severe shortage of good quality the single-digit level. office space in prime areas has 50 • This will put additional pressure on turned the market in favour of rents, which are estimated to rise

INR / sq.ft./month landlords, who are asking for 45 by 22% in H1 2016 compared to higher rents from tenants with H1 2015. each passing quarter. 40 • In H2 2015, the weighted average 35 rents moved up 19% from `47 H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016E per sq ft per month in H2 2014. The maximum increase has been Source: Knight Frank Research witnessed in the eastern part of the city, with rents in SBD East and PBD East rising by 22% and 24%, respectively in the past 12 months. This is primarily because of the limited availability of vacant space in these markets.

138 139 INDIA REAL ESTATE RESEARCH

Key Contacts

ADVISORY, RETAIL & HOSPITALITY CAPITAL MARKETS OFFICE AGENCY GULAM ZIA RAJEEV BAIRATHI VIRAL DESAI Executive Director - Advisory, Executive Director National Director Retail & Hospitality [email protected] [email protected] [email protected] FACILITY MANAGEMENT PROJECT MANAGEMENT SAURABH MEHROTRA NELLIE SAMUEL DEBEN MOZA National Director - Advisory Executive Director - Knight Frank Property Executive Director - Knight Frank Property [email protected] Services Private Limited* Services Private Limited* [email protected] [email protected]

ADITYA SACHDEVA INDUSTRIAL & ASSET SERVICES Director - Retail RESIDENTIAL AGENCY [email protected] BALBIRSINGH KHALSA MUDASSIR ZAIDI National Director National Director [email protected] [email protected]

LAND AGENCY (Mumbai) RESEARCH FALI PONCHA DR. SAMANTAK DAS Director Chief Economist and National Director [email protected] [email protected]

COPY EDITORS DESIGN & GRAPHICS Rhea Pinto Mahendra Dhanawade Lead Editor Assistant Manager [email protected] [email protected]

Deborah Herbert Copy Editor [email protected]

*Facility Management and Project Management services are offered by Knight Frank Property Services Private Limited which is a wholly owned subsidary of Knight Frank ( India ) Private Limited.

140 141 COMMERCIAL BRIEFING For the latest news, views and analysis of the commercial property market, visit RESEARCH knightfrankblog.com/commercial-briefing/

CAPITAL MARKETS Rajeev Bairathi JULY - DECEMBER 2015 Executive Director, Capital Markets [email protected]

ADVISORY Saurabh Mehrotra National Director, Advisory [email protected]