City Report Bangalore Office Market Q2 2010


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 Bangalore Office Market
o Increased volumes of transaction indicate rising positive sentiments among occupiers in Bangalore
o Increased supply leads to escalated levels of vacancy in the PBD market
o With regard to the SEZ sector, equilibrium between Supply & Demand is expected to be maintained over the medium term

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City Report Bangalore Office Market Q2 2010

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  3. 3. CONTENTS Summary p. 4 Macroeconomic Context p. 5 Bangalore Map p. 6 Central Business District (CBD) p. 7 Secondary Business District (SBD) p. 8 Periphery Business District (PBD) p. 9 Rental Values & Capital Values p. 10 Key Projects p. 10 Major Transactions p. 11 Glossary p. 12 CITY REPORT BANGALORE OFFICE MARKET - Q2 2010
  4. 4. SUMMARY The Bangalore Real Estate Market is continuing to show It is also expected that some of the existing corporates in this positive signs of recovery by reporting transaction volumes region will relocate to other competitive location of the SBD of approx. 3.6 mn sq.ft. in Q2 2010. Given this performance, owing to lower rentals in comparison to CBD and availability the first half of 2010 has witnessed transaction volumes of of scale up options of “grade A” office space in the micro- 5.6 mn sq ft. When compared to transaction volumes of 4.6 market. mn sq ft in 2009, this is a clear indication of rising positive sentiments among occupiers in Bangalore. A major portion of PBD markets of the city are witnessing increasing levels of these transactions took place in IT parks located on the vacancy due to excess supply. With approximately 7 mn sq ft South-Eastern quadrant of the Outer Ring Road micro of additional fresh supply expected to be completed by the market. The Peripheral Business Districts continue to report end of Q4 2010, vacancy levels are expected to further high vacancy levels because of the competitive space options escalate. However with regard to the SEZ sector, based on available on the Outer Ring Road between Sarjapur and existing & projected future SEZ supply which is expected to Hebbal. While Q2 2010 witnessed transaction volumes of 3.6 be completed at regular intervals, equilibrium between mn sq ft, the year ended 2010 projections are expected to be Supply & Demand is expected to be maintained over the close to 8 mn sq ft for Bangalore. medium term and rental values in SEZ developments are expected to remain stable till Q2 2011. With the availability If the momentum of the present demand is sustained, of good infrastructure and stabilization in rentals across the vacancy levels are expected to decline in the CBD and SBD, last two quarters, the PBD is expected to attract large format which in turn will put pressure on rental values in these space occupiers. micro markets. Leverage in negotiations is also expected to continue to favor developers in the CBD keeping the rental value momentum in an upward direction. CITY REPORT BANGALORE OFFICE MARKET - Q2 2010 I4I
  5. 5. CRR & SLR MACROECONOMIC CONTEXT 10 Rates hiked further. Well calibrated move to manage 8 growth and inflation Percent 6 The Reserve Bank of India (RBI), which is the central bank of India in its monetary policy has further raised the CRR, Repo Rate and the Reverse Repo 4 Rate by 25 basis point each. This action by the central bank is seen as a well calibrated move to balance growth, arrest rising inflation and manage 2 liquidity and currency. It is expected that due to rise in rates, the real estate 0 lenders will also increase their rates especially for construction lending. The banking sector also moved to a new “base rate” system of lending effective Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Mar-08 May-08 Jul-08 Sep-08 Nov-08 July 1, 2010, which is expected to enhance transparency in loan pricing, promote competition in the credit market and also improve the transmission SLR CRR of monetary policy. On the credit side, the base rates set by major public sector banks were in the narrow range of 7.25% -8% Further, the RBI also announced two real estate indices for residential and commercial rates. Repo & Reverse Repo Rate These indices are expected to be updated every quarter. However, it will take 10 some time for these indices to be active. 8 The economic recovery gained further momentum with the good progress of the monsoon which is expected to yield better agricultural output. The last 6 Percent 6 months has seen substantial rise in foreign cash flows and exports. However, the trade deficit is increasing as imports, especially the oil based imports 4 has risen significantly as well. The economic survey report released by the government of India just ahead of the union budget announced a GDP 2 between 8.25% - 8.75% for the year 2010-11. However, the various industry estimates pegs the GDP growth between 7% -8%. 20-Jan-09 20-Feb-09 20-Mar-09 20-Apr-09 20-May-09 20-Jun-09 20-Jul-09 20-Aug-09 20-Sep-09 20-Oct-09 20-Nov-09 20-Dec-09 20-Jan-10 20-Feb-10 20-Mar-10 20-Apr-10 20-Oct-08 20-Nov-08 20-Dec-08 On the SEZ space, the fate of approved Special Economic Zones, which are Repo Reverse Repo yet to become operational, hangs in balance with the proposed Direct Tax Code (DTC) denying tax exemptions to new units in the SEZs. According to the revised DTC draft, the tax exemptions for the SEZs have been provided only for the existing units. The new draft clearly mentions that the profit-linked Gross Domestic Product (GDP) deductions of units already operating in SEZs for the unexpired period (of 15 12.00% years) will be incorporated. This provision would mean end of new 10.00% 9.30% investment by promoters, who have received formal approvals from the 9.20% 8.80% 8.60% Commerce Ministry after acquiring land for their projects. The uncertainty 8.00% 8.80% 7.60% 7.90% will affect even the operational SEZs because not all of them have been 7.90% 5.80% occupied by units. At present, SEZ units get 100% income tax exemption on 6.00% 6.00% export income for the first five years, 50% for the next five years. They also 6.10% 5.30% get exemption on 50% of the ploughed back export profit for the next five 4.00% years after the first 10 years. The leading SEZ developers of India especially 2.00% in the IT/ITES space are currently lobbying with the government to reverse certain decisions with respect to exemption for the SEZ units and it will be 0.00% interesting to see the impact of these revisions of DTC on the decision making Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 process especially of the international corporate occupiers in the IT/ITES services sector. Major Real Estate Sales (In INR / In Million) Profits (In INR / In Million) Companies in Q on Q Q on Q Wholesale Price Index (WPI) India Q2 2010 Q1 2010 Change % Q2 2010 Q1 2010 Change % 18.00% DLF Limited 202,853 199,437 2% 41,103 42,638 -4% 16.00% 82,857 113,248 18,004 16,341 Unitech -27% 10% 14.00% India Bulls 43,371 49176 -12% 13,358 9,427 42% 12.00% Sobha Developers 31,560 39,950 -21% 3,430 5,570 -38% 10.00% Peninsula Land 14,831 22,474 -34% 4,996 9,627 -48% 8.00% Parsvnath 6.00% 25,279 35,489 -29% 3,182 3,472 -8% Developers 4.00% Pheonix 4,043 3,447 17% 1,826 1,570 16% 2.00% 25,293 37,820 2,172 4,511 Omaxe Limited -33% -52% 0.00% Mahindra 6,793 10,096 1,448 2,369 Jan-09 Apr-09 Jul-09 Oct-09 Jan-07 Apr-07 Jul-07 Oct-07 Jan-10 Apr-10 -33% -39% Jan-06 Apr-06 Jul-06 Oct-06 Jan-08 Apr-08 Jul-08 Oct-08 Lifespace Ananthraj 10,342 3,409 203% 4,585 3,095 48% Source: Confederation of Indian Industries Ackruti City 17,649 21,731 -19% 4,205 5,420 -22% Ansal Properties 25,077 21,571 16% 3,686 -633 -682% CITY REPORT BANGALORE OFFICE MARKET - Q2 2010 I5I