|
MARKET BEAT INDIA
|
INDIA ECONOMY
|
GDP
The Union Budget for the financial year 2006-07 presented in Parliament last month provides a robust view of the Indian economy. GDP growth rate for presenting fiscal 2005-06 is expected to be 8.1% with manufacturing agriculture and services showing higher growth rate as compared to previous years. Services sector is expected to contribute 54% of Indias GDP
|
| Industrial Production |
Overall industrial growth was 7.8% during April- December, 2005 as compared with 8.6% in April-December, 2004. As per the latest Economic.
Survey, capacity addition and improved productivity are the two sources of industrial growth.
|
| Interest Rates |
Interest rates in India are showing an upward trend owing to continued credit demand and tight domestic liquidity. The prime lending rates, have been revised upwards, are reported in the range of 11%-13%. The Reserve Bank of India is expected to announce measures to ease the tight liquidity conditions in India.
|
| Exchange Rate |
The domestic currency has been weakening against the US Dollar as Reserve Bank of India bought dollars aggressively both to absorb flows that came into the stock markets and to ease the year -end liquidity pressure the Indian Rupees value would depend on Reserve Bank of Indias Intervention and movement of Dollar abroad.
|
| Prognosis |
The Union Budget forecasts the GDP grow the rate for the current fiscal to be 8.1% the performance of manufacturing and services sector are expected to be the primary drivers of growth. The Budget lays thrust on Infrastructure, rural development and social sectors, which hare expected to boost investments, raise productivity and consumption.
|
MUMBAI OFFICE MARKET OVERVIEW
|
| Mumbai Office Market Overview |
Effective Rents
Rentals and Capitals value have demonstrated a substantial increase across all of the micro markets during the quarter All inclusive prime base rents in CBD are estimated in the range of Rs. 190-215/ft2
pm (US$ 51-58/ft 2 pa). Base rents for Grade A buildings in Worli and Bandra Kurla complex are estimated to be approximately Rs180/-190/ ft2 pm (US$ 48-51/ ft 2 pa)and Rs.175-185/ ft2 pm (US$ 47-50/ ft2 pa) respectively, Andheri east are estimated in the range of Rs.70-80/ ft2 pm(US$ 19-21/ ft2 pa).
|
| Net Effective Occupancy Cost Analysis |
| Rs/sq.ft./month |
CBD |
Worli |
Lower Parel |
Bandra Kurla |
Andheri Kurla |
Malad |
Powai (IT) |
Powai (Non IT) |
| Avg. Base Rent |
200 |
185 |
125 |
180 |
75 |
43 |
50 |
68 |
| Gross Rent* |
216 |
207 |
133 |
202 |
80 |
46 |
53 |
72 |
| Average Efficiency (%) |
85% |
75% |
70% |
70% |
70% |
82% |
80% |
80% |
| Net Effective Occupancy Cost |
254 |
276 |
190 |
289 |
114 |
56 |
66 |
90 |
* Includes notional cost of Interest on Security Deposit at 12 % per annum
|
| Vacancy Rates |
Vacancies for all prime building across Mumbai have declined over the last few quarters With increased absorption levels the prime building in the CBD, central Mumbai, Bandra Kurla Complex (BKC) and Andheri Kurla micromarkets are witnessing limited space availability
|
| Demand |
Suburban locations and Central Business District have emerged as the most preferred locations. This quarter financial services were the primary demand drivers and absorbed, approximately 64% of the total space absorbed during the quarter. The suburb of Andheri has witnessed substantial absorption during the quarter.
|
| Supply |
With the Supreme Court of India clearing the way for development of Mill land in central Mumbai for development, significant addition to the supply levels of high grade properties at Lower Parel is expected by end of 2006 and 2007.
|
| Values |
The capital values have increased marginally across the micromarkets owing to positive investment sentiments. However, with the upcoming addition to supply levels, the values are likely to rationalize in the medium term.
|
| Major Office Destinations |
The demand for office space during the quarter was spread across all micromarkets, though note evenly. Worli and Lower Parel captured significant demand for large and medium size office space, while CBD and Off CBD precincts met the demand primarily for small size format spaces.
|
| Major IT & ITES Micro-Markets |
Suburban precincts of Andheri Kurla, Lower Parel and Malad have captured significant demand originating from IT & ITES firm. New developments at these locations offer quality physical infrastructure at comparatively competitive prices, proximity to residential locations and robust telecom connectivity.
|
| Market Outlook |
The demand for commercial precincts is expected to remain buoyant with IT.ITES & financial services firms likely to be the primary demand drivers. The trend for surbanization is likely to continue, with suburban location (as well as Central Mumbai) capturing demand for small to medium format spaces. Central Mumbai is expected to witness supply of approximately 4.5 million ft2 during the next two years. Significant additions to supply levels are expected through 2006 to 2007. and the proposed sales of other Mill Lands are expected to infuse additional supply in Central Mumbai, which may lead to stabilization in the prices in the medium term. With new land parcels being released in Lower Parel as well as in Bandra Kurla Complex, supply increases are expected in the medium term. However owing to the continued demand increases, prices are likely to remain bullish.
In summary, with the supply getting impacted in the short term, as new projects may get marginally delayed, leading to an upward pressure on capital and rental value fro quality office space. However, the prices are likely to stabilize in the medium term on account of additions of additions to supply levels over the years.
|
| CBD- Nariman Point |
|
Effective Rents
|
The Net Effective Occupancy Cost (NEOC- calculated on carpet area basis) for prime space in CBD ranges between Rs. 241-275/ ft2 pm (US$ 65-74 ft2 pa) thus including an upward tend in the rental values in the micro market.
|
| Vacancy Rates |
The continued influx of Multinational Corporations and expansion by domestic corporate have reduced Vacancy levels to around 3% in the CBD area
|
| Demand |
The micro markets witnessed brisk activity and accounted for 14% of overall market absorption. The demand during the quarter largely originated from financial / banking services firms.
|
| Supply |
No supply additions are expected in the micro market in the medium term.
|
| Values |
The achievable values for Grade A spaces are estimated between Rs 16,500-17,250/ ft2 (US$ 371-388 / ft2 ), which implies an increase in the capital values of A grade properties in the micro market.
Key Transactions
- Citibank leased approximately 18,000 sq.ft at Nariman Point.
- Ernst & Young leased 10,000 sq.ft at Nariman Point
|
| Central Mumbai Location (Worli, Prabhadevi, Lower Parel) |
|
Effective Rents
|
Rentals in Worli have increased during the quarter due to absorption of high-grade stock. Base rents in Worli are reported in the range of Rs.175-190/ ft2 pm (US$ 47-51/ ft2 pa) and the Net Effective Occupancy Cost is approximately in the range of rs.270-280/ ft2 pm (US$ 50-55/ ft2 pa). Achievable gross area base rents at Lower Parel are in the range of Rs.115-130/ ft2 pm (US$ 31-35/ ft2 pa) and NeOC is estimated to be Rs.180-200/ ft2 pm (US$ 49-54/ ft2 pa).
|
| Vacancy Rates |
Owing to High absorption in Central Mumbai and limited additions to supply of GardeA developments, the micromarkets is witnessing substantially low vacancy levels, which is estimated at approximately 2%-4%.
|
| Demand |
Central Mumbai has witnessed an increased leasing activity during the quarter and accounted for 15% of the total absorption in the quarter.
|
| Supply |
Additional supply is expected at Lower Parel by the end of year 2007 due to the opening of the erstwhile mills land. Also, additions to supply levels are expected at Dadar and Prabhadevi.
|
| Values |
The capital values have increased marginally at Worli during the quarter and are estimated at approximately Rs.17000- 19,000/ ft2 (US$ 382-427/ ft2 ). Capitl vlues at Lower parel are reported to be in the range of Rs.12000 15500/ ft2 (US$ 270-349 ft2 )
|
| Key Transaction |
Society General bank leased 6,650 sq. ft in Worli.
|
| Net Effective Occupancy Cost-Lower Parel |
| Avg. Base Rent (Rs.psf. pm) |
125 |
| Gross Rent* |
133 |
| Average efficiency (%) |
70% |
| Net Effective Occupancy Cost |
190 |
* Includes notional cost of Interest on Security Deposit at 12 % per annum
|
| Bandra Kurla complex |
|
Effective Rents
|
Rentals increased marginally at Bandra Kurla Complex(BKC) Base rents in Grade A buildings are estimated to be in the range of Rs.170-190/ ft2 pm (US$ 46-51/ ft2 pa), translating into an NEOC in the range of RS.280-292/ ft2 pm (US$ 76-79/ ft2 pa). The Grade A buildings in BKC have low space efficiencies (about 65-70%), which is the primary reason for high occupancy cost.
|
| Vacancy Rates |
While prime building in BKC have registered low vacancy rates (1%-2%) the sub-prime buildings still have relatively higher vacancies
|
| Demand |
No significant transactions were reported during the quarter reflecting subdued leasing activity.
|
| Supply |
No significant additions to supply level have been reported during the quarter in the micromarket. However, the micro market is expected to witness supply infusion of approximately 1.4 million ft2 by 2006.
|
| Values |
The micro market has witnessed marginal increase in the capital values of Grade A office is estimated in the range of 18,000- 21,000/ ft2 (US$ 405-472/ ft2 ).
|
| Key transaction |
No significant transactions are reported in the micro market for the quarter.
|
| Net Effective Occupancy Cost-Bandra Kurla Complex |
| Avg. Base Rent (Rs.psf. pm) |
180 |
| Gross Rent* |
202 |
| Average efficiency (%) |
70% |
| Net Effective Occupancy Cost |
289 |
* Includes notional cost of Interest on Security Deposit at 12 % per annum
|
| Andheri (East) |
|
Effective Rents
|
Base rents fro Grade A buildings are reported to be in the range of Rs. 70-77/ ft2 pm (US$ 19-21/ ft2 pa), which translates into an NEOC of approximately Rs. 110-120/ ft2 pm (US$ 30-32/ ft2 pa). The achievable base rents fro Grade B & C spaces are approximately in the range of Rs.90-105/ ft2 pm (US$ 24-28/ ft2 pa)
|
| Vacancy Rates |
Prime properties at Andheri (Esat) continue to winner low vacancy levels ranging between 5%-7% during the quarter.
|
| Demand |
The Micro market has witnessed active leasing activity during the quarter.
|
| Supply |
Significant infusion of Grade A spaces is expected over the next one year, approximately 7 million ft2 is likely to be operational by end 2006.
|
| Values |
The micro market has witnessed a marginal increase in value during the quarter. The capital values for Grade A spaces are estimated in the range of 7,800-8,500/ ft2 (US$ 175-191/ ft2 ), whereas those for Grade B & C spaces continued to be in the range of Rs, 7,250-7,900/ ft2 (US$ 163-178/ ft2 ).
|
| Key Leasing Transactions |
- NIIT leased approximately 21,000 sq.ft in Andheri (East).
- Deutsche Bank leased 165,000 sq.ft in Andheri (East).
|
| Net Effective Occupancy Cost-Andheri Kurla Complex |
| Avg. Base Rent (Rs.psf. pm) |
75 |
| Gross Rent* |
80 |
| Average efficiency (%) |
70% |
| Net Effective Occupancy Cost |
114 |
* Includes notional cost of Interest on Security Deposit at 12 % per annum
|
| Other Suburban Locations (Malad-West & Powai) |
|
Effective Rents
|
Base rents for Grade A office space in Malad (West) are estimated at Rs.42-46/ ft2 pm (US$ 11-12/ ft2 pa), which implies an NECO of approximately Rs.59-64/ ft2 pm (US$ 16-17/ ft2 pa) during the quarter. Base rents at Powai are estimated at approximately Rs.50-70/ ft2 pm (US$ 13-19/ ft2 pa) depending on IT/ITES or non IT/ITES requirements which implies an NEOC of about 66-90/ ft2 pm (US$ 17-24pa)
|
| Vacancy Rates |
Prime properties at Malad continue to witnesses subdued leasing activity with no significant transactions being reported.
|
| Supply |
Significant addition to high grade stock is expected at Powai and Malad. About 2.5 and 2.15 million ft2 of space is likely to be operational by end of 2007 at Malad and Powai respectively
|
| Values |
The micro market have witnessed an increase in the capital values of the Grade A properties and are reported to be in the range of Rs. 4250-4750/ ft2 (US$ 96- 107/ ft2 ) at Malad, while those for office developments at Powai are approximately Rs 5000-5250/ ft2 (US$ 112-118 /ft2 ).
|
| Key Transactions |
No significant transactions are reported in the micro market for the quarter.
|
| Net Effective Occupancy Cost-Malad |
| Avg. Base Rent (Rs.psf. pm) |
43 |
| Gross Rent* |
46 |
| Average efficiency (%) |
82% |
| Net Effective Occupancy Cost |
56 |
* Includes notional cost of Interest on Security Deposit at 12 % per annum
|
