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Monthly Real Estate Monitor – January 2013 4. Office Real Estate – Office space absorption in 2013 is likely to 13 Insights for India Real remain equal to that in 2012. Supply correction will lead to fewer Estate in 2013 options for occupiers, and steady absorption will decrease vacancy levels. Competition for space in prime buildings in prime locations is The year 2012 closed with a few notes of positivity as the inflation expected to increase in 2013, and these spaces will start earning a was below the Reserve Bank of India’s (RBI’s) projected levels and premium. Rents are expected to increase from 2H13 onwards as the Index of Industrial Production (IIP) growth increased in the last fewer new projects are being launched, and vacant spaces are two months of the year, giving new hopes for 2013. Overall, 2012 steadily filling up. Decisions on occupying special economic zone remained inactive, affecting all the major sectors in real estate. (SEZ) spaces will be taken by occupiers who are sure of taking a Office space absorption remained lower compared with 2011. position in India as they have to go live by March 2014 to avail the Meanwhile, retail faced challenges of quality supply, affecting the benefits. overall absorption. The residential demand improved; however, developers continued to struggle with unsold inventories. With the 5. Retail Real Estate – The relaxation in FDI policies in multi-brand expected moderation in inflation and strengthening policies, we have retail interestingly has surged aggressive growth amongst Indian gathered few interesting insights for 2013 from real estate experts. retailers to take the first-mover advantage. This is expected to drive the demand in 2013. However, as supply of retail malls remains a 1. Economy – As per RBI, the policies will focus towards growth in challenge, retailers are likely to opt for built–to–suit (BTS) options or 2013, although risks of inflation will continue to remain. Interest high-street properties. As most developers are focusing on rates are expected to witness a downward correction of 100 to 150 residential developments, the supply of malls will reduce in the bps in 2013.The softening of interest rates is expected to reduce the major cities over the year. In 2013, retailers will be cautious and home loan rates, in turn increasing the buying of real estate assets. take more time to execute agreements as they will do a detailed Increasing urbanisation and consumption despite the slowdown in analysis before closing transactions. Retailers will commit to space GDP growth will be the key drivers of the economy in 2013. only if they see approvals in place and the construction of the space in progress. 2. Policies – The recent policy initiatives are expected to improve the investment climate and business environment, and they are 6. Residential Real Estate – REITs in India allowing investments in likely to benefit the real estate sector in 2013. Few policies to look at rental housing is a new trend worth watching. The framework and in 2013 are: the Real Estate Regulation Bill, likely to be tabled in the details of REITs, once formulated, are likely to drive the investor upcoming winter session of the parliament; the real estate demand across the prime cities in India in 2013. Another interesting investment trusts (REITs) or real estate mutual funds (REMFs), trend observed in the last two years was that the stock in the range expected to get launched in 2013; and the Land Acquisition and of INR 2,000–3,000 per sq ft was fast sold out. In 2013, this range is Rehabilitation and Resettlement Bill, likely to be tabled in the likely to shift to INR 3,000–5,000 per sq ft with the increase in upcoming budget session in 2013. inflation and construction costs. 3. Infrastructure – The infrastructure sector achieved a substantial 7. Industrial Real Estate – Sale-cum-leaseback of exiting industrial FDI of USD 2.8 billion, accounting for a notable 7.7% of the total FDI assets by existing companies is likely to increase in 2013. MNCs inflow in FY 2012. In the year 2013, the relaxation of FDI policies in testing the waters in India are likely to focus on BTS industrial multi-brand retail is expected to surge the investment in back-end properties. Warehousing companies are now preparing for the infrastructure development such as logistics. Moreover, an FDI of up goods and services taxes (GST) and are slowly moving from go- to 100% is also permitted under the automatic route in built-up downs to distribution centres. The growing trend in e-retailing and infrastructure and is likely to surge the development of the city and the regional level infrastructure in 2013. Pulse •Research Dynamics•2012 FDI in multi-brand retail is expected to surge the demand for Meanwhile, Whitefield will continue to retain its sheen for both office warehousing spaces in 2013. and residential real estate because of affordability, proximity to key work places and good social infrastructure. 8. Education and Health Care – There are aggressive growth plans in K-12 and skill-space educational institutions in 2013, 13. Other Cities – Chennai, which witnessed a historical high particularly in the non-metro cities of India, where there are large number of residential launches in 2012, is likely to slow down in opportunities. In the health care segment, hospital chains, along 2013. This trend is also expected in Pune. Meanwhile, Kolkata and with day care centres, are expected to expand aggressively in 2013. Hyderabad are likely to witness increased launches. Prices of Both these segments are expected to attract private equity residential units are likely to increase in all the cities because of the investment in 2013. increased construction costs. Ahmedabad, Bhubaneswar Kochi and Coimbatore are other cities in India that are likely to witness 9. Investment sentiments – Debt capital is likely to increase in immense development activities in 2013. 2013. Banks are expected to be more flexible in lending. Most of the realty funds are close to their exit periods as they were invested around 2006–2007. Therefore, the exit of real estate funds is What’s New!! The Reserve Bank of India expected to increase in 2013. Meanwhile, interest on income- allowed real estate developers producing assets by institutional investors is likely to increase over and housing finance companies to raise up to USD 1 billion the year. However, the availability of such assets will continue to through external commercial remain a challenge. Assets will witness a softening of yield rates borrowings (ECBs) in the current amidst increased liquidity. fiscal year to promote low-cost housing projects. Deal of the Month DLF Global Hospitality Limited (DGHL) sells 10. Delhi – Most of the absorption in Delhi NCR is likely to focus Silverlink Resorts for a around Gurgaon and Noida, with the exception of Delhi International valuation of USD 300 Airport Limited (DIAL) and few select stand-alone Grade A projects million (INR 16.37 billion) to Amanresorts Group. of Delhi. As the demand supply gap of quality office space is Green Wall A 500-acre solar farm by Raasi expected to increase because of the supply constraints in select Green Earth Energy Pvt Ltd for precincts of Delhi NCR, rents are expected to increase in certain generation of 100 MW of solar photovoltaic power is planned micromarkets by 2H13. Developers will focus on delivery of the to come up in Paramakudi in Ramanathapuram District, products. Tamil Nadu. 11. Mumbai – Office absorption and residential demand will continue to increase in Mumbai. The trend of completion of high- Figure 1: Financial Indicators quality new office projects pushing up Grade A office vacancy levels Grade A Rental Value Capital Value and providing tenants with greater bargaining power will reduce in Office Retail Residential 2013. With banks drastically reducing lending activities over the last Delhi NCR two years, resulting in debt remaining a constraint, not much of new Mumbai commercial supply (except spill over from 2012) is expected to be Bangalore Chennai completed in 2013 and 2014. Residential launches are expected to Pune increase; however, price drop is unlikely to happen over the year. Hyderabad Amidst constrained supply of quality retail malls, rental gap between Kolkata Grade A malls and Grade B malls will further widen in the year. 12. Bangalore – In terms of office space, Outer Ring Road will continue to be the sought-after destination in 2013. For residential real estate, North Bangalore is expected to continue to remain as Erratum: Pulse – Monthly Real Estate Monitor November 2012: Transaction of the best performing region in the city with strong infrastructure ‘the Consulate of Spain leasing space in Express Towers at Nariman Point’, Mumbai was incorrectly mentioned as a completed transaction. We deeply development, increased demand and price appreciation in 2013. regret the error. Monthly Real Estate Monitor – January 2013 Bangalore Office Rents Capital Value INR per sq ft per Key Precincts month INR per sq ft Bangalore witnessed moderate leasing activity in Outer Ring Road (North) 48 – 55 5,500 – 6,500 Old Airport Road 60 – 65 6,000 – 7,000 December. The vacancy levels continued to remain Outer Ring Road (Eastern) 46 – 52 4,700 – 6,000 low on the back of stable demand and restricted Old Madras Road 30 – 34 3,000 – 3,500 supply. The major transactions included Accenture Electronic City 26 – 28 2,500 – 3,000 leasing space in Pritech Park SEZ Phase II on Sarjapur Outer Ring Retail Rents Capital Value Road, Cypress renting space at Bagmane Tech Park in Sir C.V. INR per sq ft per Key Precincts month INR per sq ft Raman Nagar, and L’Oreal taking space in Global Research Koramangala 80 – 150 9,000 – 16,000 Triangle at Whitefield.