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The Seven Stars of IndiaIndias best performing micro markets for occupiers
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Through the Turn
With Indias economic recovery well under way, its commercial realestate market is beginning to stabilize. While the landscape will
remain favourable for tenants in 010, landlords will have greater
inuence starting in 2011. This closing window of opportunity for
occupiers means that they should be proactively looking to lock in
attractive leases in the near term as ofce rents are beginning to
bottom out and options for large, quality space abound.
Indeed, most cities in India have already witnessed an uptick in the
volume of lease transactions in 1Q 010 with NCR-Delhi, Mumbai
and Hyderabad having recorded more than a million sq ft of leaseseach. In 009, occupiers showed a strong preference towards
operational vacant stock rather than projects under construction,
a departure from 007-08.
With the forecasted growth of net completions expected to outpacethat of net absorption, a signicant supply overhang is expected to
remain over the next one year. This will lead vacancy level across
India, which was at 17.% at end-009 to rise to mid 0% by
end-010. Locational advantage and tenant mix will serve as key
differentiators as landlords struggle to lease unoccupied space.
The freefall in rental values has stopped or slowed signicantly in all
Indian metros with the exception of NCR-Delhi and Mumbai. While
these two cities are currently feeling the affects of a large supply
pipeline in the short term, they are also expected to lead the rebound
in the property cycle, followed by Bangalore, Chennai, Pune,Hyderabad and Kolkata.
Figure 1: Pan India supply demand scenario 1Q 010
.8
8.8
.9
.
1.6
.
9
.
.
8.8
.0
19.6
9.
.
.6
0
10
0
0
0
0
60
70
80
00 006 007 008 009 010F 011F 01F
Completions/Absorption(m
illionsqft)
0%
%
8%
1%
16%
0%
%
8%
%
Vacancy(%)
New Completions Net Absorption Vacancy
8.
.1
Figure 2: Vacancy and absorption uctuation 1Q 2010
0
10
0
0
0
0
60
70
Q0
Q0
Q0
Q0
Q06
Q06
Q07
Q07
Q08
Q08
Q09
Q09
AvailableStockforAbsorption(millionsqft)
(VacantStockfromP
reviousQtr+
NewCompletionsinCurrentQtr)
0%
10%
0%
0%
0%
0%
60%
70%
QuarterlyAbsorptionRate(%)
(NetAbsorptionasPercentageofAvailableStock)
Vacant Stock from Previous Qtr New Completions in Current QtrQuarterly Absorption Rate Net Absorption
Source: Real Estate Intelligence Service
Source: Real Estate Intelligence Service
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Decision Parameters
Portfolio Rationalization
2009 2010
Consolidation of multiple ofce spaces within a city
Value recovery from underutilized properties throughsale or subleasing
Occupiers with a long term India vision and clarityon location opted to buy instead of lease
Consolidation to give way to slow expansion towards
a multiple location strategy - suburban back ofcecoupled with a CBD head ofce
Opportunistic sales and subleasing to continue,especially with prime city properties
Buy vs. lease will continue to be closely scrutinized
Cost Reduction/Operational Efciency
Increased focus on reducing operational costsincluding headcounts
Halt to expansion and diversication plans
Cautious optimism leads to slow renewal of hiring andexpansion in human resources and real estate
Expansion options revisited
Leverage
Rather than waiting and watching markets, occupiersactively renegotiated on rent and incentives tothe maximum possible extent
Long lease negotiation periods awaiting global
expansion approvals
Extent of leverage reduced with demand stabilization
Still no room for large scale rental increments
Leasing activity gains momentum occupiers lock in
as a buffer against slowly rising rents
Completed V/SUnder-constructionBuilding Preference
Only operational, or ready to move in spaces arewithin the consideration set
Focus remains on operational projects
Under-construction properties with a maximum horizonof 6-8 months might also be considered
Location
Focus on Indias top 7 markets (Tier I and Tier II cities)
Scrutinize cost/benet of a CBD location and activelyexplore options in SBD and suburbs
Tier I cities will continue to remain the most preferredlocations, followed by Tier II markets
Better performing Tier III cities might be considered byyear end
Moving Ahead
Demand from global players, headquartered abroad, might catch up with domestic occupier demand by the year end.
IT/ITeS sector will continue to lead, followed by sunshine sectors including Telecom, Pharma and BFSI. Industrial growthmight spur ofce space demand from the manufacturing and engineering sector.
Occupiers to remain exible in option selection; focus on growth and remain operationally efcient.Uncertainty over headcount will remain a challenge for CREs as they ensure that corporate real estate strategies are inline with broader organizational objectives.
Occupier focus will be on Special Economic Zones, due to the STPI sunset clause by March 011.
Source: Jones Lang LaSalle Meghraj Research
New Strategies for the Post-Downturn Era
Occupier Strategy
OccupierType
2009 2010 2011 2012
1H 2H 1H 2H 1H 2H 1H 2H
A
B
C
A. Occupiers who have a global footprint, primarily operating out of Europe or the US, but are new to the Indian market. They face global cost pressures butdo not want to miss the India cost arbitrage benet. For example: Amazon, First Data, ANZ Bank.
B. Occupiers who have a global footprint and have a long presence in the Indian market. These are tapping the present window of opportunity. For example:RBS, HSBC, Deutsche Bank, E&Y, Accenture.
C. Domestic occupiers who foresee brighter economic times in the near term. For example: TCS, WIPRO, Uninor, Reliance being a few.
As new market realities unfold, the real estate strategies employedby occupiers will depend in large part on the share of their
operational footprint within India vs. abroad. The occupiers, whom
weve clubbed into three types (primarily global footprint long in
India, primarily global footprint - new to India and domestic footprint),
will see their strategies progress from cautious to optimistic at
differing rates.
Regardless of operational footprint, in 010 occupiers are adjusting
their decision parameters with respect to portfolio rationalization,
cost reduction and location section.LEGEND Cautious Optimistic Growth Acceleration
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The 7 Stars of India
A relative comparison of 16 micro-markets across Indias tier I &tier II cities was carried out in order to identify those which are
most favourable for occupiers. The analysis included a wide range
of real estate, infrastructure and socio-economic parameters.
Micro-markets were selected based upon expected supply, occupier
demand and indicator movement. Central business districts and
other high priced, low supply ofce destinations were not included
in the analysis.
The scores provided above are weighted average indices scored from an occupier point of view. This essentially enumerates that higher the rentaldepreciation, larger the vacancy uctuation and more the SEZ and STPI expansion option availability in a micro-market, higher would be its scoring.
Within the real estate parameters a higher focus has been provided to Occupier Demand, followed by Supply and Indicator uctuation within a city.
The segmentation above aims at combining quantitative parameters with qualitative assessment to identify one STAR performer from each city. Someof the remaining nine micro-markets were a close second to the star performers with strong fundamentals. These select micro-markets might emerge asrising stars of the future.
Based on relative scores, which are weighted average indices forindividual micro-markets, the best performers were collectively
titled as The Stars of India. These micro-markets shall maintain
top positions for occupiers, regardless of the industry type, having
witnessed substantial leasing activity in the past, substantial rental
correction making them affordable up to year 00-06 levels and
robust and good quality future supply.
Source: Real Estate Intelligence Service
Micro Market
Delhi NCR Mumbai Bangalore Chennai Pune Hyderabad Kolkata
Gurgaon
Noida
SBDCentral
SBDNorth
WesternSuburbs
EasternSuburbs
Thane-NaviMumbai
SBDBangalore
Whitefeld
SBDChennai
Suburbs
SBDPune
Hinjewadi
HitechCity&
Gachibowli
Rajarhat
SaltLake
RealEstateParameters
Demand 1.1 0.8 0.8 0.90 0.90 0.8 0.78 1.0 0.7 0.9 0.88 0.90 0.8 1.10 0.7 0.78
Supply 1.1 0.88 0. 0. 0.8 0.8 0.7 0.7 0.6 0.8 0.7 0.80 0.0 1.00 0.0 0.
IndicatorMovement
0.70 0.70 0.8 0. 0. 0.8 0. 0.0 0. 0.0 0.0 0.0 0. 0.0 0. 0.
Real EstateScore
1.06* 0.8 0.66 0.72* 0.70 0.6 0.7 0.84* 0.6 0.77* 0.76 0.78* 0.68 0.94* 0.7 0.59*
OtherOccupierConsiderations Infrastructure .0 .0 .00 . .0 .00 .0 .0 .00 .00 .0 .00 .0 .7 . .7
Social &Physical
Environment
. .0 .90 .80 .8 . .6 .98 . . .68 .80 .90 .80 .00 .78
Socio-Economic &
InfrastructureScore
3.87 .78 .9 4.58 .71 .7 .9 4.19 .60 3.67 .01 3.88 .1 3.58 .10 3.77
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Indicators Employed
The scores listed are a weighted sum index for each of the sevenbroad parameters covered in our analysis. The sub-indicators
covered under each parameter are explained below.
Supply:A weighted index inclusive of:
Existing stock
Future supply till 01
STPI options for next one year
SEZ availability for next one year (ready to move in options for
occupiers till 011)
Maximum supply score is 1.5
Demand:A weighted index inclusive of:
Average annual absorption from 007 to 009
Average annual absorption for 010 to 01 (forecast)
Vacancy change from peak (Q 008) and forecast for a year
ahead
Pre-commitment status (future supply till 011)
Maximum demand score is 1.5
Indicator Movement:A weighted index inclusive of:
Rental decline from peak, and forecast for a year ahead
Rental overheads such as CAM charges and property tax
Maximum indicator score is 1.0
Other Externalities: A weighted index inclusive of:
Infrastructure: new infrastructure initiatives, geographical
expansion, new transport and connectivity links, proximity to
airport, telecom and power availability
Social and Physical Environment: seismic risk, international
level educational, medical and social facilities, city culture and
recreation options, star hotel accommodation, cost of living and
cost of expatriate accommodation
Maximum externality score is 5.0
Market Segmentation
Keeping city dynamics, historical growth and other externalitiesin mind, one micro-market from each city has been shortlisted to
represent the star in that region. The star micro-markets represent
the opportunities that occupiers have in each city to expand their
base into.
Micro-market Segmentation
City Star Aspirant
NCR Gurgaon Noida
Mumbai SBD NorthSBD Central, Thane &
Navi Mumbai
Bangalore SBD Bangalore Whiteeld
Chennai SBD Chennai OMR
Pune SBD Pune Hinjewadi
HyderabadHitec City &Gachibowli
Kolkata Salt Lake Rajarhat
Stars: Market is moving, go lock a deal
Rents have reached their lows
Leasing activity in existing projects is high, followed by projects
getting operational in next six to nine months
Occupiers A, B and C (as dened in the occupier strategy
section) hold these as their rst preferences for city expansion
Large scale leases recorded in second half of 2009 and rst half
of 010
Markets moving towards rent recovery in next six to eight months
Aspirants: Options available but not for too long. Focus onrental negotiation; opt for the best option available.
Marginal rent compression possibleLeasing activity picked up from rst few months of 2010
Second preference for occupier A, rst preference for occupier B
and C
Developers should continue to demonstrate exibility in pricing
and offer rental incentives
Rental recovery in 011, not a 010 picture
A supply overhang over the next two years would imply that the Stars and the Aspirants would compete directly with each other in
attracting occupier demand. While Stars have traditionally been popular amongst occupiers (especially the A and B categories), they
would continue to press them against Aspirants to offer more price discounts. By doing this the occupiers would try to stretch their
negotiation leverage till second half or end of 2010, which might even postpone rental increments in Stars in the near future.
Source: Real Estate Intelligence Service
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The Seven Star Quadrant Analysis
Star micro-markets are a combination of high real estate development, coupled with a well developed support infrastructure and asustainable social and business environment.
Balanced Low on S&P* High on RE** Outliers
Balanced markets offer a great mixof social and physical environmentalong with favorable real estateindicators.
With all these markets dependenton IT/ITes industry, their strategyshould be to offer the best arbitrageon both fronts to remain competitive.
Although comparable to theBalanced in terms of real estateindicators, they score low on socialand physical environment.
A balanced approach towardsdevelopment would result inincreased preference towards theselocations.
Leaders among the pack in terms ofreal estate indicators, they compareequably to the Balanced in socialand physical environment and arepreferred destinations for occupiers.
They should strive for becoming aworld class destination by focusedefforts towards enhancing social andphysical environment.
SBD North and SBD Bangalore arehigh on real estate activity, as wellas social/physical infrastructure anattractive combination for occupiers.
Salt Lake has well establishedinfrastructure but lags behind inreal estate growth. Landlords mustcontinue to focus on affordablerents.
SBD Pune
SBD Chennai
SBD Central Mumbai
NOIDA
East Suburbs Mumbai
West Suburbs Mumbai
Whiteeld
Thane & Navi Mumbai
Rajharat
Hinjewadi
Chennai Suburbs
Gurgaon
Hitec City and Gachibowli
SBD North
SBD Bangalore
Salt Lake
Noida
SBD North
SBD Bangalore
SBD Chennai
Gurgaon
SBD Central
WesternSuburbsEastern
SuburbsThane &
Navi MumbaiWhitefield
Chennai Suburbs
SBD Pune
Hinjewadi
Hitech City &Gachhibowli
Salt Lake
Rajharat
.90
.10
.0
.0
.70
.90
.10
.0
.0
.70
0.0 0.0 0.60 0.70 0.80 0.90 1.00 1.10
Real Estate Scores
Infrastructure,
Social&PhysicalEnvironmentScores
Source: Real Estate Intelligence Service *S&P: Infrastructure, Social and Physical Environment **RE: Real Estate
Star
Aspirant
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Introduction to the Seven Stars of India
DELHI NCR GurgaonReasons for Success
Locations of Interest
DLF-Cyber City
Golf Course Road
MG Road
Sohna Road
Udyog Vihar
Gurgaon is a clear winner when it comes to occupierdemand and availability of options due to sufcient qualitysupply, steep rental depreciation and exible approach ofdevelopers (led by DLF). It also scores high on a fair mixof retail, residential and hospitality concentration, MRTStransportation and regional connectivity, aided by proximityto the international airport.
NOIDA comes close as a second alternative, especially forIT occupiers, boasting of an excellent infrastructure and
lower rentals. Moving ahead, both Gurgaon and Noidawould compete for tapping occupier demand.
However, we believe that Gurgaon will continue to maintainits leadership position in the future.
Key Developments*
DLF Cybercity
Time Tower
Vatika Business Park
Welldone Tech Park
Unitech Infospace SEZ
DLF Silokhera
MUMBAI SBD NorthReasons for Success
Locations of Interest
Andheri
Andheri-Kurla Road
SBD North (primarily Andheri), at the heart of Mumbai, iscloser to the city airport, has an under-construction MRTSconnectivity, and boasts of more than dozen - star hotels,malls, social, medical and recreational facilities.
With more than million sq ft of future supply expected inthe next few months and a diverse mix of occupiers, SBDNorth has recorded one of the best absorption rates inMumbai over the past two years.
Thane, Navi Mumbai, Western and Eastern suburban micro-markets shall continue to attract IT/ITeS occupiers primarilydue to affordability.
Key Developments*
Kalpataru Square
1 Atrium
Nataraj
Akruti Star
Leela Business Park
BANGALORE SBD Bangalore
Reasons for SuccessLocations of Interest
Outer Ring Road
Inner Ring Road
CV Raman Nagar
Bannerghatta Road
Offering Grade A ofce space at the most affordable rentalranges (INR 8-0 psft pm) among the secondary districtsin the country, SBD Bangalore has witnessed more than million sq ft of average annual absorption from 007-009.
With proximity to key residential areas and availability oflarge land parcels, connectivity to the international airport,elevated expressways, the SBD micro-market in Bangaloreis currently the largest micro-market in the country in termsof operational grade A commercial stock with highestoccupancy rate.
We foresee the trend of single digit vacancy to continuein this micro-market due to controlled supply pipeline androbust occupier interest.
Key Developments*
Embassy Manyata Tech Park
Vrindavan Tech Village
Pri Tech Park
RMZ Ecospace
*Key developments include properties that are either operational or getting operational in the next six to eight months and witnessing large active leasing.
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Micro-Market Positioning:
Stars have been on the lower end of the vacancy variation, while witnessing rental dips comparable to Aspirants.
Gurgaon (NCR), Thane and Navi Mumbai (Mumbai) have
led all micro markets in rental depreciation, thus proving very
attractive for many occupiers. However, despite a low rental
correction in micro-markets such as Salt Lake (Kolkata),
SBD Bangalore, SBD Chennai, Whiteeld (Bangalore) and
Hinjewadi (Pune), they continue to remain attractive for
occupiers primarily due to low rental base, quality future
supply and existing tenant prole.
Kick start 2010: post the downfall, where do they stand
Most of the Stars have witnessed relatively low vacancy
rise from peak, as demand has managed to arrest micro-
market decline. Mostly suburbs have witnessed large vacancy
uctuations (beyond 1000 basis points), due to a supply
overhang and a demand drought. This continues to exert
pressures on rents in these micro-markets.
GurgaonNoida SBD Central
SBD - North
Western Suburbs
Eastern Suburbs
Thane-Navi Mumbai
SBD Bangalore
Whitefield
SBD Chennai
Suburbs Chennai
SBD PuneHinjewadi
Hitech City& Gachibowli
Salt Lake
Rajharat
-
00
1,000
1,00
,000
,00
,000
-70%-60%-0%-0%-0%-0%-10%0%
Rental Drop from Peak (Q 008 - 1Q 010) (% in INR terms)
Bubble Size: Existing Commercial Office Stock as on 010 (in sq ft; inclusive of IT, Non-IT and SEZ space)
VacancyRisefromP
eak(Q008-1Q010)(Basispoints)
Star AspirantSource: Real Estate Intelligence Service
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Circa 2011: picture of a year ahead
Micro-markets will get aligned closer to rental stability, NCR
and Mumbai being exceptions. It is visible that a lead in rental
appreciation would be taken by micro-markets with less futuresupply like SBD Bangalore, SBD Pune and Salt Lake, wherein the
supply overhang is relatively less pronounced. Gurgaon is in the
left half due to large supply-poor demand scenario in upcoming
locations of Sohna Road, Golf Course Extension and Manesar,
which together shall witness supply of more than 1 million sq
ft over the next years. Prime areas of Gurgaon such as MG
Road, NH-8 and Golf Course Road are expected to witness rental
price appreciation as early as 1H 011 due to forecasted strong
demand recovery.
Moving ahead, Stars will witness relatively low vacancy variationas these would be the most preferred destinations for rising
occupier queries. Hence, these would either witness rental stability
or positive rental appreciation. Although NOIDA is expected to
witness rental pressure in the near-term, we foresee occupiers
returning to the NOIDA market due to strong and improving
infrastructure, emerging residential support at affordable pricing
and existing population of about a million.
Most micro-markets are expected to reach their rental lows within
the next 2-3 quarters, if not reached as yet, which is reected in
the chart above. This indicates that the window of opportunityfor occupiers, where balance of power favors them, continues to
shrink with every passing quarter.
Gurgaon
Noida
SBD-Central
SBD-North
Western Suburbs
Eastern Suburbs
Thane-Navi Mumbai
SBD Bangalore
Whitefield
SBD Chennai
Suburbs ChennaiSBD Pune
Hinjewadi
Salt LakeRajharat
-00
0
00
00
600
800
1000
100
100
1600
-10% -8% -6% -% -% 0% % % 6%
Rental Variation (% in INR terms)
Bubble Size: Future Supply of commercial office till early 011 (in sq ft; inclusive of IT, non-IT and SEZ space)
VacancyVariation(BasisPoints)
Hitech City & Gachibowli
Star AspirantSource: Real Estate Intelligence Service
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Authors
Abhishek Kiran Gupta, Associate Director, Research & REIS
+91 611 600
Abhishek Kiran Gupta leads the Jones Lang LaSalle Meghraj India Research team and is based in
Mumbai. He manages research operations on a Pan-India level and is responsible for the teams
outputs, including research reports such as topical white papers, property market digests and bespoke
research projects based on specic client requirements. Prior to joining Jones Lang LaSalle, he had
seven years of experience in market research, business analysis and market strategy consulting,
servicing diversied industries including pharmaceutical, software publishing and insurance.
Abhinav Joshi, Assistant Manager, Research & REIS
+91 1 60 100
Abhinav Joshi joined Jones Lang LaSalle Meghraj in January 007 and handles the Delhi-NCR
Research and Real Estate Intelligence Services (REIS) team. Based out of Gurgaon, he contributes
to topical whitepapers, property market digest and research deliverables on the industrial, commercial,
retail and residential real estate markets in India.
He has also worked on numerous projects encompassing market research, business location advisory,
feasibility and valuation. He is a town planner by qualication and is pursuing an executive education
from Indian Institute of Management (Kolkata).
Trivita Roy, Assistant Manager, Research & REIS
+91 0 00 9100
Trivita Roy has joined Jones Lang LaSalle Meghraj Research team in 007. Based out of Hyderabad,
she contributes to topical whitepapers, property market digest and research deliverables on industrial,
commercial, retail and residential real estate markets in India. She is also responsible for Indian real
estate intelligence service (REIS).
Trivita is trained as City Planner from Indian Institute of Technology Kharagpur and has a two years
experience in real estate research.
Avinash Mirchandani,Assistant Vice President, Research and REIS
+91 611 600
Avinash Mirchandani supports the Jones Lang LaSalle Meghraj India Research & REIS team. Based
in Mumbai, he provides guidance and oversight on all of the teams research outputs and bespoke
client projects. Avinash originally joined Jones Lang LaSalle in 007 as the programme manager for
the World Winning Cities Research Programme, a multi-year research initiative conducted by ourGlobal Research team. Prior to that, he worked in a variety of consulting and research roles across
the biotech, aerospace and IT industries in the United States. Avinash holds a bachelors degree in
Economics from UCLA and an MBA from the Indian School of Business.
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