City Report - Delhi Office Market Q2 2010


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 Delhi Office Market
o Major demand for IT/ITES space in SEZ\'s mainly due to expiry of the Software Technology Parks of India (STPI) scheme in March 2011
o Improved demand levels across NCR
o Office Space Rentals stabilize in Q2 2010, but no significant increase
o Noida at par with Gurgaon for office space leasing

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City Report - Delhi Office Market Q2 2010

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  3. 3. CONTENTS Summary p. 4 Macroeconomic Context p. 5 Delhi Map p. 6 Central Business District (CBD) p. 7 Alternate Central Business District (Alternate CBD) p. 8 Secondary Business District (SBD) p. 9 Periphery Business District (PBD) p. 10 Rental Values p. 11 Capital Values p. 12 Key Transactions p. 13 Key Projects p. 14 Glossary p. 15 CITY REPORT DELHI OFFICE MARKET - Q2 2010
  4. 4. SUMMARY High Demand for SEZ space. Due to better tax exemptions and incentives, most of the IT / The investors are still cautioous of investing in the region as ITES Companies are moving to new SEZ developments in the the risk adjusted returns are below their expectations. With National Capital Region. Due to this movement, the demand the massive improvement in road and rail infrastructure, it is for commercial real estate has grown. Further, as per the expected that the region will attract investors attention in revised Direct Tax Code guidelines, all SEZ units set up after the next 6 months. The rental and capital values however, is March 2011, will not be eligible for tax benefits. This has likely to remain the same till the end of 2011. accelerated the absorption of real estate space in NCR. On the development side, most of the companies have announced projects in Gurgaon & Noida. However, there is no new commercial project announcement in Delhi. A number of Government agencies are gearing up to auction certain land parcels in Delhi, which is likely to generate good interest especially from owner-occupier group. CITY REPORT DELHI 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 DELHI OFFICE MARKET - Q2 2010 I5I