October 2009

RESEARCH

October 2009

E&r @ GLANCE Economy & Realty

Knight Frank Economic Outlook

On account of the festive season, the

Recent financial market activity indicates

consumer durables industry is expected to

positive sentiments and high liquidity. The

Key economic indicators continue to reflect

witness growth in excess of 20%. Players like

equity markets continued to tread forward in

the Indian economy's gradual recovery from

Godrej & Boyce recorded sales growth of 35%

September'09 on account of the foreign

the recent financial slump. The September

in September'09. For Samsung Electronics,

institutional investor (FII) money chasing

quarter, on account of the festive season,

the sales growth for the September quarter is

Indian equities. While FIIs sold about

witnessed increased demand for consumer

estimated to be around 30%. Further, the

Rs.53,000 crores (net) of equities in 2008,

durables, FMCG, automobiles and other

payment of entitlements under the sixth

they have bought about Rs.65,500 crores

similar goods. The broader data for the first

central pay commission will ensure higher

(net) this year until October 16, 2009. The

half of the current financial year also reflect

spending power in the December quarter,

decent returns garnered by the institutional

improvement. Domestic automobile sales of

which should help sustain growth in the

investors on QIP issues since April'09 have

5.78 million during April-September' 09

aforementioned sectors. The payment of the

further compelled them to invest in the Indian

exhibited a 15% improvement on sales during

second installment, expected in October'09

market. The collective worth of these QIP

the same period last year. Similarly, during

and amounting to Rs.29,373 Crores, could

issues by 34 companies, which between them

the first half of this fiscal year, sales of

translate into Rs.50,000 to Rs.2,00,000 in

raised about Rs.29,000 Crores, is up 39% as

passenger vehicles and two-wheelers

the hands of government employees in the

of October 12, 2009. Major developers like

increased by about 13% and 16%

A to C groups.

DLF, Unitech, HDIL and Indiabulls Real Estate

respectively. This increase in sales is

raised money through these QIP issues.

primarily due to the reduced cost of cars

The Index of Industrial Production (IIP)

following excise duty cuts offered in the

continued its rising trend in August'09. The

Exchange Rate 55

stimulus package, easy financing options

index recorded its best performance in the

50

and reduced auto loan interest rates of

last 22 months in increasing by 10.4% in

45

5

even lower interest rates for a limited period,

manufacturing sector grew by 10.2% and the

40

an example being the IDBI Bank's offer of

mining sector grew by 12.9%. Another

35

auto loans at 8.5% for loans taken between

indicator for economic activity, the

30

October 1 and December 31, 2009

HSBC Markit Purchasing Managers' Index

25

INR/USD (LHS)

25,000

12 10

Rs. crores

Percent

exports. Adding to this plight is the

Source: SEBI Note: Oct'09 data until 16 Oct

India Research Samantak Das National Head - Research +91 (022) 2267 0876 [email protected]

Oct-09

Sep-09

Jul-09

Aug-09

Jun-09

Apr-09

May-09

General

Mar-09

around 10% since March'09, which has not Jan-09

-20,000

Feb-09

The Indian currency has appreciated by Dec-08

-15,000

Oct-08

appreciation of the Rupee relative to the USD.

Nov-08

Jun-09

Aug-09

Apr-09

Feb-09

Dec-08

Electricity

-10,000

Sep-08

Source: Government of India

Oct-08

Jun-08

Apr-08

Feb-08

Aug-08 Mfg

Oct-09

resulting in negative growth of Indian

0

-5,000

Mining

Jul-09

consumption, overseas demand is still weak,

5,000

0 -2

Mar-09

revival on the back of improved domestic

10,000

2

Dec-08

While the indicators discussed above signal a

15,000

8

4

Annual Appreciation/(Depreciation)

Source: Government of India

20,000

6

Sep-08

FII Investment in Equity Securities (Net)

-30

Jun-08

demand.

-25

20

Feb-08

September'09 on account of robust domestic

14

-15 -20

(PMI), rose from 53.2 in August'09 to 55 in Index of Industrial Production (IIP)

-5 -10

only affected the realization of export proceeds, but has also rendered these exports more expensive.

KnightFrank.com This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Research.

Percent

August'09. Also in August'09, the

0

INR

around 10%. Some banks have been offering

16

15 10

October 2009

E&R @ GLANCE Inflation (Monthly Average)

Mumbai Office Space Outlook

Sale transactions in the western suburbs

12

The office market in India was badly impacted

10

account for a majority of 43% of commercial

by the global financial crisis. Prices tumbled

sales around Mumbai during the ongoing

8

under the weight of reduced demand and

financial year. During May, 19,000 sq.ft. of

6

cost cutting by corporates. However, as with

commercial space, constituted by two

4

the realty market in general, India's

transactions, was sold in Andheri East at an

2

commercial market is now showing signs of a

average price of Rs.12,100 per sq.ft. During

revival and enquiries are on the rise. A glance

July, a single transaction comprising

at office space transactions witnessed

70,000 sq.ft. was concluded in Malad East at

around Mumbai over the course of the

a price of Rs.4,800 per sq.ft. Given the large

ongoing financial year reveals a picture of

quantum of existing and upcoming supply in

improvement characterized by sporadic

western suburban markets, this region can be

transaction trends.

expected to drive commercial activity in

Mumbai Office Space Transactions (Apr’09-Aug’09) 900

capturing current consumption patterns has

800

been highlighted in earlier editions of this

700

report. The government recently announced

600

300 200

revised in April'2000, to 850 articles. In line

100

items like cell phones, laptops and digital cameras, all items that are widely used

200

0

South Mumbai

manufactured product categories will include

300

Lease

100

0

Lease

Sale

August

from the current 435 articles, which was last with current consumption patterns,

400

400

July

of constituents of this index will be increased

500

500

Sq.ft. (in ‘000)

more contemporary. Accordingly, the number

Mumbai Office Space Transactions

Western Suburbs

the revamp of this index in order to make it

Mumbai once the market is fully recovered. 600

Sq.ft. (in ‘000)

The inadequacy of the WPI inflation index in

June

Source: Government of India

May

Sep-09

Jul-09

Mar-09

May-09

Jan-09

WPI

Central Suburbs

CPI

Nov-08

Sep-08

Jul-08

Mar-08

May-08

Jan-08

-2

have been few and far between, but still

April

0

Navi Mumbai

Percent

14

Sale

nowadays. The base year for computation of

Source: Knight Frank Research

Source: Knight Frank Research

this index will also be shifted from 1993-94 to

During Apr'09 to Aug'09, markets in the

Since the start of the ongoing fiscal year,

2004-05. In order to have less frequent but

western suburbs have accounted for 61% of

South Mumbai locations extending from

more reliable data, the frequency of the index

commercial leasing around Mumbai. In April

Nariman Point to Lower Parel has accounted

has been reduced from weekly to monthly.

and May, a total of approximately

for 16% of commercial leasing and 38% of

The new index, to be launched in

400,000 sq.ft. of space, constituted by

commercial sales around Mumbai. In South

November'09, is expected to be more reliable

14 major transactions, was leased in

Mumbai, notable purchase activity was

and contemporary.

locations like Bandra Kurla Complex, Andheri

witnessed in May and June, during which a

East and Goregaon. Although the months of

total of 80,000 sq.ft. of commercial space,

June and July did not witness the same

constituted by three transactions, was

quantum of transactions, a nonetheless

bought in Parel/Lower Parel at an average

sizeable total of roughly 250,000 sq.ft.,

price of Rs.15,000 per sq.ft.. Leasing activity

constituted by 8 major transactions, was

has been more prevalent, especially from

leased during this period. During August and

April onwards. During April and May, a

September, a total of 220,000 sq.ft. of space,

combined 200,000 sq.ft. of space,

constituted by 9 transactions, was leased

constituted by 7 major transactions, was

around the Western Suburbs. During Apr'09

leased around South Mumbai. The months of

to Aug'09, transactions around BKC have

June and July witnessed a similar quantum of

been concluded at rentals ranging from

6 leasing transactions, but of a far lower

Rs.200 to Rs.240 per sq.ft. per month, while

square footage. A total of approximately

in Andheri East and Malad transactions have

30,000 sq.ft. of space was leased around

been concluded at rentals ranging from

South Mumbai during this period. Leasing

Rs.80 to Rs.130 per sq.ft. per month. As the

activity in South Mumbai since the start of the

stock of premium properties decline, select

year has been evenly distributed around the

properties across micro markets are expected

major office micro markets of Nariman Point,

The CPI measure of inflation, which stood at 11.9% in July'09, continued to remain high at 11.7% in August'09. WPI inflation, which is lower on account of the high base effect, has started to inch upwards, and stood at 0.92% for week ended October 3, 2009. Although increased liquidity in the system may warrant an increase in interest rates in the next few months, the yields on long-term government bonds have increased by close to 100 basis points in the last quarter. While the economy is currently firing on all cylinders, the duration for which the current environment of low interest rates, flush liquidity and controlled inflation persists will determine growth patterns further down the road.

to witness 5-7% price appreciation.

India Research Samantak Das National Head - Research +91 (022) 2267 0876 [email protected]

KnightFrank.com This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Research.

October 2009

E&R @ GLANCE Average rental values for Grade A office space (Rs. /sq.ft./month)

Mumbai Office Space Transactions

No. of transactions

16 14

Mumbai Micro Market

12

Nariman Point

10 8 6 4 2

Lease

August

July

June

May

April

0

Sale

Source: Knight Frank Research

Lower Parel, Worli and Prabhadevi. Since the start of the current financial year, lease transactions in Lower Parel/Parel have been concluded at rates ranging from Rs.155 to Rs.225 per sq.ft. per month, while in Nariman point transacted rates have exhibited a far smaller range of Rs.225 to Rs.240 per sq.ft. per month.

Mar'09

Jun'09

Sep'09

300

300

300

Fort/Ballard Estate/Churchgate

188

188

188

Worli - Prabhadevi

238

213

205

Lower Parel

180

148

165

BKC

255

250

255

Andheri (E)

110

110

110

Powai

115

115

115

Malad

110

110

110

Thane

48

48

48

LBS Marg

110

105

110

Navi Mumbai

53

53

53

Source: Knight Frank Research

space has been transacted around Mumbai. 90% of this transacted space is accounted for by leasing. The bulk of commercial leasing and sales that occurred since the start of the fiscal year has occurred from April through June. Thereafter, sales came to a standstill

In the central suburbs, leasing activity

and leasing was prevalent as recently as

occurred from April to June. During this

August, during which 8 leasing transactions

period, a total of approximately

were concluded around Mumbai. Analysis of

220,000 sq.ft. of commercial space,

the demand that has been engaged in

comprising 4 major transactions, was leased

commercial transactions since the start of

in LBS Road and Powai. During the

FY'10 reveals that tenants from the BFSI

subsequent months the central suburban

sector account for a majority 43% of sale and

commercial market has been quiet. Lease

lease transactions concluded around Mumbai

transactions in Powai during FY'10 have to

this year. The IT/ITES sector, which during

date been concluded at rates ranging from

past prosperous years was driving

Rs.85 to Rs.115 per sq.ft. per month.

commercial demand across India, accounts for only 14% of commercial sale and lease

Since the start of the ongoing fiscal year,

transactions concluded around Mumbai

approximately 2 million sq.ft. of commercial

during Apr’09 to Aug’09. It is unsurprising to

The IT/ITES sector, which during past prosperous years was driving commercial demand across India, accounts for only 14% of commercial sale and lease transactions concluded around Mumbai during Apr’09 to Aug’09

see that while the BFSI sector has Occupier-wise Distribution of Transactions (Apr’09-Aug’09)

predominantly dominated South Mumbai commercial transactions, IT/ITes and manufacturing sector demand has been far more prevalent in western suburban markets where cheaper alternatives are available. The commercial transactions data for the ongoing fiscal year reveals sporadic and unpredictable trends that are to be expected until India's office market resumes consistent growth.

BFSI - 43% Manufacturing - 22% IT/ITES - 14% Others - 21% Source: Knight Frank Research

India Research Samantak Das National Head - Research +91 (022) 2267 0876 [email protected]

KnightFrank.com This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Research.