INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India

 
INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India
RESEARCH

  INDIA REAL ESTATE
  RESIDENTIAL AND OFFICE
  JANUARY - JUNE 2016

AHMEDABAD | BENGALURU | CHENNAI | HYDERABAD | KOLKATA | MUMBAI | NCR | PUNE
INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India
INDIA REAL ESTATE         RESEARCH

                        TABLE OF CONTENTS

                        04                    INDIA
                        14               AHMEDABAD
                        24               BENGALURU
                        44                 CHENNAI
                        64               HYDERABAD
                        82                 KOLKATA
                        94                  MUMBAI
                        112                   NCR
                        132                   PUNE

2                                                 3
INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India
INDIA REAL ESTATE       RESEARCH

                 INDIA  RESIDENTIAL & OFFICE MARKET

                                 Hetal Bachkaniwala
                                 Vice President - Research

4                                                        5
INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India
INDIA REAL ESTATE       RESEARCH

                                                                                                                                                                            CITY-WISE SPLIT OF RESIDENTIAL LAUNCHES
RESIDENTIAL MARKET                                                                                                                                                           FIGURE 3
RESIDENTIAL MARKET LAUNCHES, SALES AND PRICE TRENDS                                                                                                                          HALF-YEARLY NEW LAUNCHES (TOP EIGHT CITIES)
                                                                                                                                                                                               H2 2015       H1 2016    H2 2016E
                                                                                                                                 •	H1 2016 witnessed the lowest
FIGURE 1                                                                                                                                                                                      40,000
                                                                                                                                    number of new launches in the
HALF-YEARLY LAUNCHES AND SALES TRENDS (TOP EIGHT CITIES)
                                                                                                                                    last three years across the top                           35,000
                                  LAUNCHES         SALES                                                                            eight cities, as developers became
                                                                                                                                    cautious because of the huge                              30,000
                                  180,000
                                                                                                                                    unsold inventory that has been

                                                                                                                                                                            Number of units
                                                                                                                                                                                              25,000
                                                                                                                                    piling up since 2013. New launches
                                  160,000
                                                                                                                                    reduced by 9% in the last six                             20,000
    Number of units

                                                                                                                                    months, from 117,200 units in H1
                                                                                                                                                                                              15,000
                                                                                                                                    2015 to less than 107,120 units in H1
                                                                                                                                    2016. This is down by 54% from the                        10,000
                                  140,000
                                                                                                                                    232,490 units that was observed in
                                                                                                                                                                                               5,000
                                                                                                                                    H1 2013.
                                                                                                                                 •	NCR has witnessed the sharpest                                 0
                                  120,000                                                                                                                                                                 MUMBAI        NCR        BENGALURU   PUNE    CHENNAI   HYDERABAD   KOLKATA   AHMEDABAD
                                                                                                                                    drop in new launches, at 41% YOY,
                                                                                                                                    followed by Chennai and Pune,           Source: Knight Frank Research
                                                                                                                                    at 36% and 32%, respectively.
                                  100,000
                                               H1 2014      H2 2014      H1 2015      H2 2015     H1 2016    H2 2016 E              Mumbai turned out to be a surprise,
                                                                                                                                    as the city noted growth in new
Source: Knight Frank Research                                                                                                       launches by more than 29% YOY in
                                                                                                                                    H1 2016.
Note: The top eight cities are Mumbai, NCR, Bengaluru, Pune, Chennai, Hyderabad, Kolkata                                                                                    CITY-WISE SPLIT OF RESIDENTIAL SALES
and Ahmedabad
                                                                                                                                                                              FIGURE 4
FIGURE 2                                                                                                                                                                      HALF-YEARLY SALES (TOP EIGHT CITIES)
PRICE AND INFLATION INDICES (TOP EIGHT CITIES)                                                                                                                                                  H2 2015       H1 2016   H2 2016E

                                                                                                                                                                                              40,000
                                  125
                                                                                                                                                              CPI
                                                                                                                                                                                              35,000
                                  120                                                                                                                         MUMBAI
    Index value (Q1 2013 = 100)

                                                                                                                                                                                              30,000
                                                                                                                                                              NCR

                                                                                                                                                                            Number of units
                                  115                                                                                                                                                         25,000
                                                                                                                                                              BENGALURU
                                                                                                                                                                                              20,000
                                  110                                                                                                                         PUNE
                                                                                                                                                                                              15,000
                                                                                                                                                              CHENNAI
                                  105
                                                                                                                                                                                              10,000
                                                                                                                                                              HYDERABAD

                                  100                                                                                                                         KOLKATA                          5,000

                                                                                                                                                              AHMEDABAD                            0
                                   95                                                                                                                                                                     MUMBAI        NCR        BENGALURU   PUNE    CHENNAI   HYDERABAD   KOLKATA   AHMEDABAD
                                         Q1       Q2        Q3     Q4      Q1        Q2     Q3      Q4       Q1     Q2     Q3     Q4     Q1     Q2
                                        2013     2013      2013   2013    2014      2014   2014    2014     2015   2015   2015   2015   2016   2016
                                                                                                                                                                            Source: Knight Frank Research

Source: Knight Frank Research

•	In terms of sales, the top eight cities                                         •	Mumbai and Bengaluru led this                 growth in H1 2016.
   observed a positive growth of 7%                                                   positive growth in sales volume,
                                                                                                                                 •	Price growth across all the cities
   in H1 2016, as the number of units                                                 at 23% YOY and 18% YOY
                                                                                                                                    remained muted in H1 2016.
   sold jumped from 126,615 in H1                                                     respectively, in H1 2016. However,
                                                                                                                                    However, prices in the NCR
   2015 to 135,015 in the latest period.                                              cities such as NCR, Chennai and
                                                                                                                                    residential market corrected for the
   However, this is considerably lower                                                Kolkata are still reeling under
                                                                                                                                    first time, registering a 4% YOY dip
   than 185,800 units that were sold                                                  pressure in terms of sales volume
                                                                                                                                    in H1 2016.
   across these cities in H1 2015.                                                    and have reported a negative

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INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India
INDIA REAL ESTATE                 RESEARCH

FIGURE 5                                                                                                                                                FIGURE 7
TICKET SIZE SPLIT OF LAUNCHED UNITS IN H1 2016                                                                                                            RELATIVE HEALTH OF THE RESIDENTIAL MARKETS (TOP EIGHT CITIES)
                      >`20 MN          `10-20 MN      `7.5-10 MN       `5-7.5 MN      `2.5-5 MN
INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India
INDIA REAL ESTATE                    RESEARCH

     MOVE TO STREAMLINE THE SECTOR                                                                                                 the Act lays down guidelines for the     are filed against them through the        and be compensated as they

     C
                                                                                                                                   developers, one must also consider       life of the project. Products that        complete the different stages of
           ome May 2017, and the real           provisions of the Act are maintained     m or eight apartments will have to
                                                                                                                                   the enablers that will empower the       provide insurance on the land title       the project? Clarity on such issues
           estate market will not be the        by the stakeholders, especially from     be registered with the Real Estate
                                                                                                                                   developer to implement the project       are presently not available in India.     will help the sector grow further
           same again. The Real Estate          the supply side. This, to a great        Regulatory Authority (RERA). The
                                                                                                                                   in a systematic manner.                  However, one can expect such              and benefit all the stakeholders.
     (Regulation and Development) Act,          extent, will reduce the instances of     states will have the power to lower
                                                                                                                                                                            products by the time the Act comes        By giving consumers a dedicated
     2016, will be a game changer for           discord between homebuyers and           this ceiling. However, projects that      The enablers
                                                                                                                                                                            into full force by May 2017.              grievance redressal system, the load
     all the stakeholders in the sector.        developers. Ideally, there will be a     are meant only for self-consumption
                                                                                                                                   Without the enabling factors that                                                  on consumer courts is expected
     Currently, only a few sections of the      regulator for each state, but there      will be outside the purview of this                                                The way forward
                                                                                                                                   will help developers run the project,                                              to reduce. Disputes between
     Act, especially those that will enable     could also be two regulators for a       Act.
                                                                                                                                   the Act will lose its purpose.           Going forward, one can expect             consumers and developers as a
     the full enactment of the Act, have        state or one regulator for two states.
                                                                                         Developers will need to disclose          The Act does not deal with this          certain clauses to be added to the        whole is expected to decrease, as
     been notified. As per the provisions       But how will such a watchdog help
                                                                                         all the information pertaining to         aspect, but the states will need to      Act, making it more robust. A clause      the Act will streamline the sector to a
     of the Act, it will come into full force   the overall sector?
                                                                                         a project when registering it with        implement their own sets of laws         to stop discrimination on the basis       great extent.
     by May 2017. So, what does the Act                                                                                                                                     of religion, caste, sexual orientation,
                                                Increased transparency                   RERA. This includes details such as       that will enable the development of
     mean, especially for developers and                                                                                                                                                                              Conclusion
                                                                                         the project implementation schedule,      the sector. Delhi’s recently revised     marital status and dietary
     homebuyers? The point of interest          Transparency in the sector has not
                                                                                         layout plan, land status, government      unified bylaws are a step in this        preferences is expected to be added       The Real Estate (Regulation and
     for most stakeholders is the impact        been satisfactory, though it has
                                                                                         approvals, real estate agents, sub-       direction, providing measures such       soon. Further clarifications will be      Development) Act, 2016, is good
     the Act will have on the sector as a       improved over the years and the
                                                                                         contractors, etc. This information will   as single window clearance, simpler      provided on certain provisions of the     for the sector, but developers will
     whole once all its provisions come         road ahead looks promising. For
                                                                                         be made available to the consumers,       documentation and faster approvals       Act, such as the clause that states       need some time to get used to its
     into force.                                example, if a homebuyer plans to
                                                                                         which will empower them to take           to help developers execute projects      that 70 per cent of the collections       intricacies. They will need to realign
                                                buy a house in the present day,
     The new watchdog                                                                    informed decisions. With all details      on time. The Act also carries an         from the homebuyers need to be            their businesses in accordance with
                                                they would not have access to all
                                                                                         of the project being documented, the      important piece of legislation that      maintained in a dedicated account,        the Act, which could affect launches
     Presently, disputes between                the information required to take
                                                                                         consumer can approach RERA if the         needs further clarification. It speaks   to be used only for the said project.     in the short term. The move by
     homebuyers and developers                  well-informed decisions. The Act
                                                                                         developer deviates from the details       of the title insurance of land, which    The developers can withdraw               developers to comply to certain
     typically end up in consumer courts.       will change the rules of the game
                                                                                         mentioned when registering the            ensures that chances of the said         money from the said account to            provisions in the Act could push
     Among other things, the regulator          completely, thus improving the
                                                                                         project. Similarly, developers facing     land being under any encumbrance         the extent of the work completed          up prices in the short to medium
     appointed through this Act will deal       transparency in the sector. All
                                                                                         problems with consumers can also          are minimal. However, developers         on a project. Does this mean that         term, however, in the long run due to
     with all such disputes. The regulator      commercial and residential plots
                                                                                         approach RERA for solutions. While        will have unlimited liability in case    developers will need to implement         efficiencies brought in the sector, by
     will also ensure that the relevant         with an area of more than 500 sq
                                                                                                                                   any charges of encumbrances              the project from their own resources      RERA, prices would rationalize.

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INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India
INDIA REAL ESTATE                     RESEARCH

 OFFICE MARKET                                                                                               •	H1 2016 witnessed a 12% growth in
                                                                                                                the transaction volume across the
                                                                                                                                                          FIGURE 3
                                                                                                                                                                                                                                                                 •	Vacancy levels in the top six cities
                                                                                                                                                                                                                                                                    fell marginally, from 17% in H1 2015
                                                                                                                                                          SECTOR-WISE TRANSACTIONS SPLIT IN H1 2016
                                                                                                                top six cities of India. Transactions                                                                                                               to less than 15% in H1 2016. While
  FIGURE 1                                                                                                                                                       IT/ITeS        BFSI ( including support services)   MANUFACTURING          OTHER SERVICES
                                                                                                                increased from 17.9 mn sq ft in H1                                                                                                                  cities such as Pune and Chennai
  NEW COMPLETIONS, TRANSACTIONS AND VACANCY LEVEL (TOP SIX CITIES)
                                                                                                                2015 to 20 mn sq ft in the latest six-     100%                                                                                                     witnessed a sharp drop in vacancy
                  NEW COMPLETIONS         TRANSACTIONS        VACANCY (RHS)                                     monthly period.                              90%                                                                                                    in the last year, it has increased
                 25                                                                                    20%                                                   80%                                                                                                    marginally in Hyderabad.
                                                                                                             •	Hyderabad reported the sharpest
                                                                                                                jump in transactions, from 1.5 mn            70%                                                                                                 •	Rental values have continued to
                 20
                                                                                                                sq ft in H1 2015 to 2.8 mn sq ft in          60%                                                                                                    maintain their upward movement in
     mn sq.ft.

                                                                                                       16%      H1 2016, resulting in a 91% YOY              50%                                                                                                    most of the cities, as the average
                 15
                                                                                                                increase. This was followed by               40%                                                                                                    rents shot up by 8% YOY in H1
                                                                                                                Mumbai, which reported a 50%                 30%                                                                                                    2016. This jump was led by cities
                 10
                                                                                                       14%      YOY rise in transactions. The                                                                                                                       such as NCR, Pune and Bengaluru,
                                                                                                                                                             20%
                                                                                                                remaining four cities observed a                                                                                                                    where rents have moved up in the
                  5                                                                                                                                          10%
                                                                                                                marginal dip in transactions, in the                                                                                                                range of 10-14% YOY in H1 2016.
                                                                                                                                                                 -
                                                                                                                range of 1-9%.                                           MUMBAI             NCR         BENGALURU         PUNE        CHENNAI      HYDERABAD
                  0                                                                                    12%
                          H1 2014    H2 2014       H1 2015        H2 2015     H1 2016      H2 2016 E         •	In terms of new completions, H1
  Source: Knight Frank Research                                                                                 2016 has been an encouraging              Source: Knight Frank Research

Note: The top six cities are Mumbai, NCR, Bengaluru, Pune, Chennai and Hyderabad                                period, as more than 19 mn sq ft
                                                                                                                                                           FIGURE 5
                                                                                                                of space was delivered, compared
  FIGURE 2                                                                                                                                                 DEAL SIZE ANALYSIS
                                                                                                                to just 15.8 mn sq ft in the same
  OFFICE STOCK AND OCCUPIED STOCK (AS OF JUNE 2016)                                                             period the previous year. While                      H1 2015                 H1 2016

                  STOCK         OCCUPIED STOCK                                                                  cities such as Mumbai, Bengaluru             60,000
                                                                                                                and Hyderabad witnessed a sharp
                 160
                                                                                                                spike in new completions, NCR,
                 140
                                                                                                                Pune and Chennai reported a fall.
                                                                                                                                                             40,000
                 120

                                                                                                                                                         sq ft
                 100
 mn sq.ft

                  80
                                                                                                                                                             20,000
                  60

                  40

                  20                                                                                                                                                 0
                                                                                                                                                                               MUMBAI         NCR           BENGALURU     PUNE         CHENNAI     HYDERABAD
                  0
                          MUMBAI      NCR          BENGALURU        PUNE        CHENNAI     HYDERABAD                                                      Source: Knight Frank Research

  Source: Knight Frank Research

FIGURE 4                                                                                                                                                  OUTLOOK FOR THE NEXT SIX MONTHS
CITY-WISE NEW COMPLETIONS, TRANSACTIONS AND
VACANCY LEVELS IN H1 2016                                                                                                                                                                                                                   H2 2015              H2 2016E              GROWTH
                  NEW COMPLETION       TRANSACTIONS          VACANCY (RHS)
                                                                                                                                                            New completions (mn sq ft)                                                          18.7               19.2                    3%
            7                                                                                          25%
                        20.1%       20.6%                                                                                                                   Transactions (mn sq ft)                                                             23.2               22.7                   -2%
            6
                                                                                                       20%                                                  Vacancy                                                                             15%                14%
            5                                                                 17.1%
                                                                                                                                                          Source: Knight Frank Research
            4                                                                                          15%
mn sq.ft

                                                                                                                                                         •	New completions are set to get a                            fall by 2% in H2 2016 from 23.2 mn         years. Going forward, this trend is
            3                                                                                  9.6%
                                                                   9.3%                                10%                                                  marginal boost in the coming six                            sq ft to 22.7 mn sq ft. This will ease     expected to continue in the coming
                                                  7.1%
            2                                                                                                                                               months, as cities such as Mumbai,                           the pressure on the vacancy levels,        six-month period, with Mumbai,
                                                                                                       5%                                                   Pune and Chennai will witness the                           which are expected to drop to 14%          NCR and Bengaluru projected to
            1
                                                                                                                                                            delivery of multiple projects.                              by the end of H2 2016.                     grow at the fastest pace.
            0                                                                                          0%
                                                                                                                                                         •	However, demand for office space                         •	Rents in most of the cities have
                       MUMBAI       NCR          BENGALURU       PUNE         CHENNAI     HYDERABAD
                                                                                                                                                            will be muted and is projected to                           increased steadily since the last two
Source: Knight Frank Research

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INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India
INDIA REAL ESTATE   RESEARCH

     AHMEDABAD                 RESIDENTIAL MARKET

                                Hetal Bachkaniwala
                                Vice President - Research

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INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India
INDIA REAL ESTATE                    RESEARCH

                                                                                                                                                       MICRO-MARKET SPLIT OF RESIDENTIAL LAUNCHES
                                  RESIDENTIAL MARKET
                                                                                                                                                       FIGURE 2
                                                                                                                                                       MICRO-MARKET SPLIT OF LAUNCHED UNITS
                                  AHMEDABAD RESIDENTIAL MARKET LAUNCHES, SALES                                                                                  H1 2015              H2 2015             H1 2016                                                            While more than 85%
                                  AND PRICE TRENDS                                                                                                         40%                                                                                                              of the total unsold

                                                                                                                                                                                                                                35%
                                                                                                                                                           35%                                                                                                              inventory available in

                                                                                                                                                                                                                             30%
                                  FIGURE 1

                                                                                                                                                                                                                                                                     27%
                                  AHMEDABAD MARKET TRENDS                                                                                                                                                                                                                   South Ahmedabad is

                                                                                                                                                                                                 26%
                                                                                                                                                           30%

                                                                                                                                                                                                             23%

                                                                                                                                                                                                                       23%

                                                                                                                                                                                                                                                               23%
                                                                                                                                                                                                                                                              22%
                                                                                                                                                                                                                                          22%
                                                                                                                                                           25%
                                                      LAUNCHES         SALES          WT. AVG. PRICE (RHS)
                                                                                                                                                                                                                                                                            below the ticket size of

                                                                                                                                                                               19%
                                                                                                                                                           20%
                                                     12,000                                                                        3,000
                                                                                                                                                                                                                                                                            `2.5 mn, homebuyers

                                                                                                                                                                                                       15%
                                                                                                                                                           15%

                                                                                                                                                                                     10%
                                                     10,000
                                                                                                                                                                                                                                                                            seem to be staying away

                                                                                                                                                                                                                                                 10%
                                                                                                                                   2,800

                                                                                                                                                                                                                                                8%
                                                                                                                                                           10%

                                                                                                                                           ` / sq ft
                                                      8,000
                                                                                                                                                                                                                                                                            from this market. Poor

                                                                                                                                                                          6%
                                   Number of units

                                                                                                                                                             5%
                                                      6,000                                                                        2,400
                                                                                                                                                                 0
                                                                                                                                                                                                                                                                            connectivity to the city
                                                      4,000
                                                                                                                                   2,200
                                                                                                                                                                          CENTRAL                     EAST               NORTH                 SOUTH           WEST
                                                                                                                                                                                                                                                                            center, the presence of
                                                      2,000
                                                                                                                                                       Source: Knight Frank Research
                                                                                                                                                                                                                                                                            multiple manufacturing
                                                         0                                                                         2,000
                                                                 H1 2014   H2 2014   H1 2015      H2 2015    H1 2016   H2 2016 E
                                                                                                                                                                  H1 2015:                                          H2 2015:                            H1 2016:
                                                                                                                                                                                                                                                                            units and the lack of
                                  Source: Knight Frank Research                                                                                                  8,060 units                                       7,490 units                         8,810 units          social infrastructure have
                                                                                                                                                                                                                                                                            limited this market’s
                                                                                                                                                       •	The new launches in South                                          •	North Ahmedabad, with locations
                                  •	The latest sales volume, which                              •	However, these numbers are still
                                                                                                                                                          Ahmedabad have fallen by 47%                                          such as Gota, New Ranip, Tragad,            attractiveness.
                                     had been falling since the last four                           drastically low from the heydays of
                                                                                                                                                          YOY in H1 2016, as developers are                                     Chandkheda and Motera, has
                                     years, has been arrested in H1                                 2011, when more than 27,000 units
                                                                                                                                                          still trying to offload apartments                                    witnessed the maximum number
                                     2016. Sales have increased by 10%                              were launched in a six-monthly
                                                                                                                                                          in their existing projects. While                                     of new launches in H1 2015.
                                     YOY, from 7,750 units in H1 2015 to                            period
                                                                                                                                                          more than 85% of the total unsold                                     With prices in West and Central
                                     more than 8,550 in H1 2016.
                                                                                                                                                          inventory available here is below the                                 Ahmedabad breaching the
                                  •	Stagnant prices, improvement in                                                                                      ticket size of `2.5 mn, homebuyers                                    homebuyers’ affordability level,
                                     business sentiment and the revival                                                                                   seem to be staying away from this                                     North Ahmedabad has emerged as
                                     in the manufacturing sector seem to                                                                                  market. Poor connectivity to the                                      the most preferred destination for
                                     have aided this recovery in sales                                                                                    city centre, the presence of multiple                                 mid-segment housing. During H1
                                                                                                                                                          manufacturing units and the lack                                      2016, 70% of the new launches in
                                  •	However, the sales volume is still
                                                                                                                                                          of social infrastructure have limited                                 this market were below the ticket
                                     47% lower than what was achieved
                                                                                                                                                          this market’s attractiveness.                                         size of `5 mn.
                                     in H1 2012, when more than 16,000
                                     units were sold in a six-month
                                     period. We believe it will take a                                                                                 FIGURE 3
     The sales volume, at                                                                                                                              TICKET SIZE SPLIT OF LAUNCHES DURING H1 2016
                                     significant amount of time for the
     8,550 units in H1 2016, is      Ahmedabad market to reach these                                                                                   100%

     still 47% lower than what       levels in terms of volume.                                                                                         90%

                                  •	New launches also witnessed a                                                                                      80%
     was achieved in H1 2012,
                                     surge in H1 2016 on the back of                                                                                    70%
     when more than 16,000           improved sentiment. Developers                                                                                     60%
                                     seem to have taken a cue from the
     units were sold in a six-                                                                                                                          50%
                                     recovery in homebuyer sentiment                                                                                    40%
     month period.                   and have pushed new launches
                                                                                                                                                        30%
                                     to the extent of 8,800 units in H1
                                                                                                                                                        20%
                                     2016 from 8,060 units in H1 2015,
                                     resulting in a 9% YOY growth                                                                                       10%
                                                                                                                                                            -
                                                                                                                                                                     < `2.5 MN             `2.5 - 5 MN        `5 - 7.5 MN       `7.5 - 10 MN      `10-20 MN      >20 MN

                                                                                                                                                                          CENTRAL              EAST            NORTH           WEST        SOUTH

                                                                                                                                                       Source: Knight Frank Research

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INDIA REAL ESTATE RESIDENTIAL AND OFFICE JANUARY - JUNE 2016 - RESEARCH - Knight Frank India
INDIA REAL ESTATE                                                              RESEARCH

                                                                                                                                  AHMEDABAD CITY MAP
MICRO-MARKET-WISE RESIDENTIAL SALES
                                                                                                                                                                                                                                                                                                                   GIFT City
                                                                                                                                                                                                                                                        Adalaj
 MICRO-MARKET                                                               LOCATIONS

       CENTRAL      Paldi, Vasna, Navrangpura, Maninagar, Dudheshwar, Ambawadi
                                                                                                                                                                                                                                 Tragad
         EAST       Naroda, Vastral, Nikol, Kathwada Road, Odhav
                                                                                                                                                                                                                                  Chandkheda
        NORTH       Gota, New Ranip, Tragad, Chandkheda, Motera

                                                                                                                                                                                                                     AY
                                                                                                                                                                                                                          Gota                                                        Bhat

                                                                                                                                                                                                                 IGHW
        SOUTH       Narol, Vatva, Vinzol, Hathijan                                                                                                                                                                                                                   Motera Stadium                         Gidc Naroda

                                                                                                                                                                                                             SG H
                                                                                                                                                                                                                             Chandlodia

                                                                                                                                                                                       OAD
                                                                                                                                                                                                                                                                               Hansol

                                                                                                                                                                                   NG R
         WEST       S. G. Highway, Prahlad Nagar, Bopal, Thaltej, Science City Road

                                                                                                                                                                                       I
                                                                                                                                                                                   EL R
                                                                                                                                                                                             Sola Village                                                                                                Nava Naroda

                                                                                                                                                                                PAT
                                                                                                                                                                                                                                                                                 Meghani

                                                                                                                                                                            DAR
                                                                                                                                                                                                             Memnagar                                                            Nagar

                                                                                                                                                                         SAR

                                                                                                                                                                                                                                               M ROAD
                                                                                                                                                                                        Thaltej                                                            Dubeshwar
                                          FIGURE 4                                                                                                                            Thaltej Gam                                                                                                                  Nikol          Kathwada
                                                                                                                                                                                                                             Navrangpur

                                                                                                                                                                                                                                          ASHRA
                                          MICRO-MARKET-WISE RESIDENTIAL SALES                                                                    Manipur         Bopal                     Bodakdev

                                                H1 2015           H2 2015       H1 2016
                                                                                                                                                                                                                                                                                                                Odhav
                                               35%                            32%

                                                                              32%
                                                                                                                                                                                              Prahlad Nagar                       Paldi

                                                                             30%

                                                                                            30%
                                                                                            30%
                                                                                                                                                             Shela

                                                                                          28%
                                                                                                                                                                                                                          Vasna
                                               30%                                                                                                                                                                                                                Maninagar                               Vastral Gam
                                                                                                                                                                                                                          APMC
                                               25%
                                                                                                                                                                                               Sarkhej Gam                                                       Isanpur
                                                                                                                                    Sanand

                                                                                                                      18%
                                                                                                                     17%
                                                                                                                     17%
                                               20%
                                                                                                                                                                                                                                                                                                           AH
                                                                                                                                                                                                                                                                                                             ME

                                                                                                       14%
                                                                                                       14%
                                                                                                                                                                                                                                                                                                                DA

                                                                                                      13%
                                                                                                                                                                                                                                                                                                                   BAD
                                               15%                                                                                                                                                                                                                                                                       -V
                                                                                                                                                                                                                                                                                                                           AD
                                                                                                                                                                                           LEGEND                                                                                              Vinzol                        OD
                                                                                                                                                                                                                                                                                                                               AR
                                                                                                                                                                                                                                                                                                                                    AE
                                                          9%
                                                          8%

                                                                                                                                                                                                                                                                                                   D
                                                          8%

                                                                                                                                                                                             Ring Road                                                                                                                                XP

                                                                                                                                                                                                                                                                                                 OA
                                               10%                                                                                                                                           Major Road                                                                                          GR
                                                                                                                                                                                                                                                                                                                                        Y
                                                                                                                                                                                                                                                                                              RIN
                                                                                                                                                                                             Rail Line                                                                                  TEL             Hathijan
                                                                                                                                                                                                                                                                                   AR PA
                                                                                                                                                                                             Metro/Station                                                                     SARD
                                                 5%                                                                                                                                          BRTS Phase 1 (West)
                                                                                                                                                                                             BRTS Phase 1 (East)
                                                                                                                                                                                             BRTS Phase 2
                                                   0                                                                                                 Changadar
                                                          CENTRAL             EAST         NORTH        SOUTH          WEST

                                          Source: Knight Frank Research

                                                    H1 2015:                          H2 2015:                   H1 2016:         MICRO-MARKET SPLIT OF UNDER-CONSTRUCTION UNITS AS OF JUNE 2016
     Central Ahmedabad’s                           7,750 units                       9,075 units                8,550 units
     share has been holding                                                                                                                                                                       A
                                                                                                                                                                                                                                                                              7%
                                                                                                                                                                                                                                                                                          •	Central Ahmedabad’s share in the
                                         •	The micro-market split of sales                   retail market continue to attract                                                                   CENTRAL                                                                                    total number of under-construction
     steady over the last                                                                                                                                                                         B                                                                                          units has increased significantly to
                                            has not witnessed any significant                 homebuyers to this micro-market
                                                                                                                                                                                                  EAST                                                                     21%
     12 months. Better                      change in the last six months.                    despite its higher pricing.                                                                         C
                                                                                                                                                                                                                                                                                             7% in H1 2016 from just 4% a year

     connectivity with the city             While the shares of East and                                                                                                                          NORTH                                                                    34%               ago. The last 12 months witnessed
                                            North Ahmedabad have increased                                                                                                                                                                                                                   a slew of new project launches in
                                                                                                                                                                                                  D
     centre, proximity to the               marginally, the shares of the rest of                                                                                                                 SOUTH                                                                    10%               this micro-market as the remaining
                                            the micro-markets have reduced                                                                                                                        E                                                                                          markets were going through a
     central business district                                                                                                                                                                                                                                             28%               slowdown. This has pushed its
                                            slightly.                                                                                        B      C                                             SOUTH
     (CBD) and the presence                                                                                                                                                                                                                                                                  share higher, as the construction in
                                         •	Central Ahmedabad’s share has                                                                                                                                                                                                                    these projects is progressing in full
     of a well-developed retail             been holding steady over the last
                                                                                                                                                                     D
                                                                                                                                       A                                                                                                                                                     swing.
                                            12 months. Better connectivity with
     market continue to attract                                                                                                                                                                                                                                                           •	East Ahmedabad’s share in the
                                            the city centre, proximity to the
     homebuyers to this micro-              central business district (CBD) and                                                                                          E                                                                                                                   total number of under-construction
                                            the presence of a well-developed                                                                                                                                                                                                                 units has fallen drastically in the
     market despite its higher                                                                                                                                                                                                                                                               past year, primarily due to a large
     pricing.                                                                                                                                                                                                                                                                                number of projects getting delivered
                                                                                                                                                                                                                                                                                             in the last six-months.

                                                                                                                                                                                                                          Source: Knight Frank Research

18                                                                                                                                                                                                                                                                                                                                          19
INDIA REAL ESTATE                            RESEARCH

                                                                                                                             PREMIUM RESIDENTIAL MARKET LAUNCHES, SALES AND
                                                                                                                             PRICE TRENDS
     WILL GIFT CITY’S RECOGNITION AS AN
     INTERNATIONAL FINANCE SERVICES CENTRE BOOST                                                                                                  MICRO-MARKET                                    PREMIUM LOCATIONS

     AHMEDABAD’S REALTY MARKET?                                                                                                                         CENTRAL
                                                                                                                                                                                 Ambawadi, Navrangpura, Shahibaug, Nehru
                                                                                                                                                                                 Nagar                                                                  Locations closer to the city
                                                                                                                                                                                                                                                        centre have remained as

     T
                                                                                                                                                                                 Ambli, Bodakdev, Jodhpur, Prahlad Nagar,
           he Gujarat International         Bank have already commenced             forex traders. This, in turn, will                                   WEST
                                                                                                                                                                                 Satellite, Thaltej, Vastrapur
           Finance Tec-City (GIFT)          their operations, and other banks       drive the demand for residential                                                                                                                                    the preferred destination
           project has finally received     are in the process of setting up        properties in the city, especially in                                                                                                                               for high net worth
                                                                                                                             FIGURE 5
     the much-needed recognition            shop in the coming months. The          the premium and middle segments.
     as an International Finance            enthusiasm shown by all the major       Since residential locations closer to    PREMIUM MARKET TRENDS                                                                                                      individuals (HNIs), as a
     Services Centre (IFSC) from the        financial players of the country is a   GIFT City still lag in terms of social                       LAUNCHES          SALES        WT. AVG. PRICE (RHS)
                                                                                                                                                                                                                                                        well-developed physical
     union finance minister in the          positive step for the project as well   infrastructure, we believe that areas                       1,400                                                                              6,000
     latest budget. GIFT City was           as the city. If one has to go by the    such as Thaltej, Sola, Science                              1,200
                                                                                                                                                                                                                                                        and social infrastructure,
                                                                                                                                                                                                                                   5,500
     conceptualised by the Gujarat          experience of other international       City Road, Tragad and Godrej                                                                                                                                        proximity to the CBD areas
                                                                                                                                                1,000
     Government in order to cater to        finance centres such as Dubai,          Garden City will gain the maximum

                                                                                                                                                                                                                                           ` / sq ft
                                                                                                                                                                                                                                   5,000

                                                                                                                              Number of units
     India’s large financial services       Singapore and London, it can be         from this. Apart from being                                  800                                                                                                    and easy access to the
                                                                                                                                                                                                                                   4,500
     potential by offering global firms     easily concluded that Ahmedabad’s       easily accessible from the major                             600                                                                                                    major retail centres makes
     world-class infrastructure and         real estate market is set to witness    arterial roads, such as Sarkhej-                             400
                                                                                                                                                                                                                                   4,000
     facilities. Apart from hosting an      unprecedented development in the        Gandhinagar Highway and Sardar                                                                                                                                      these areas attractive
                                                                                                                                                 200                                                                               3,500
     international finance centre, it       coming years on the back of this        Patel Ring Road, these locations
     also has a multi-speciality special    project.                                are also well developed in terms of                            0                                                                               3,000
                                                                                                                                                         H1 2014           H2 2014       H1 2015           H2 2015      H1 2016
     economic zone (SEZ). It is located                                             social and physical infrastructure.
                                            In the current scenario, Ahmedabad
     at a distance of 12 km from the                                                The recognition of GIFT City as          Source: Knight Frank Research
                                            lags behind other Indian cities, such
     Ahmedabad International Airport                                                an International Finance Services        Note: Premium markets include locations where the average ticket size of a residential unit
                                            as Mumbai, Bengaluru, Delhi, Pune,
     and 8 km from the state’s capital,                                             Centre could not have come at a          is above `15 mn, are in close proximity to the central business district of the city and have
                                            Chennai and Hyderabad, in terms
     Gandhinagar.                                                                   better time, as the city’s real estate   witnessed new project launches in the preceding three years
                                            of service sector jobs. Although it
                                                                                    is undergoing a severe slowdown          •	The premium segment continues                                          developed physical and social
     The latest union budget has            has a very strong standing in the
                                                                                    since last two years.                       to witness a steady traction in the                                    infrastructure, proximity to the CBD
     approved the various tax               manufacturing sector, the absence
     exemptions that the finance            of major IT/ITeS companies has                                                      sales volume, but new launches                                         areas and easy access to the major
     centre was requesting since the        deprived the city from high-                                                        have taken a hit. While the sales                                      retail centres makes these areas
     past few years in order to make it     income, white-collar service                                                        volume grew by 17% YOY, new                                            attractive
     globally competitive. Exemption        sector jobs. The real estate                                                        launches dropped by more than
     from dividend distribution tax,        market of the other cities has                                                      50% YOY
     securities transaction tax,            benefited immensely from the                                                     •	The premium market includes
     long-term capital gains tax and        growth in service sector over                                                       locations such as Ambawadi,
     commodity transaction tax,             the last 10-15 years. Apart from                                                    Bodakdev, Navrangpur, Prahlad
     among others, were some of the         fuelling a boom in commercial                                                       Nagar, Satellite and Vastrapur,
     incentives required to create a        real estate, the high spending                                                      among others
     feasible financial centre at par       power of such white-collar
     with other global financial centres,   employees also gives an                                                          •	New launches in the premium
     such as Dubai and Singapore. With      impetus to the residential                                                          segment have plummeted from
     the regulatory and infrastructure      market.                                                                             a high of 1,240 units in H2 2014
     framework already in place, tax                                                                                            to less than 220 units in H1 2016.
                                            Ahmedabad is on the cusp                                                            However, the sales volume has
     exemptions were the only missing
                                            of witnessing a boom in                                                             remained stable in the range of
     link and these have finally been
                                            service sector jobs, primarily                                                      500-550 units since 2014
     achieved.
                                            aided by the IFSC in GIFT
     GIFT City has received an              City. Apart from attracting                                                      •	Locations closer to the city centre
     exceptional response from all the      numerous bankers, brokers,                                                          have remained as the preferred
     major banks and stock exchanges        financial analysts and other                                                        destination for high net worth
     in the last few months. ICICI          intermediaries, the city will also                                                  individuals (HNIs), as a well-
     Bank, Yes Bank and Federal             attract several international

20                                                                                                                                                                                                                                                                                 21
INDIA REAL ESTATE                  RESEARCH

                                    AHMEDABAD MARKET HEALTH                                                                                                                                              PRICE MOVEMENT IN H1 2016
                                    FIGURE 6                                                                                                                                                             WEIGHTED AVERAGE PRICE MOVEMENT IN AHMEDABAD                                                 Since 2010, premium
                                    QUARTERS TO SELL (QTS) UNSOLD INVENTORY ANALYSIS
                                                                                                                                                                                                                                           PRICE RANGE IN H1      12 MONTH             6 MONTH        segment prices have gone
                                                                                 AHMEDABAD                     PREMIUM MARKETS                                                                                  LOCATION
                                                                                24
                                                                                                                                                                                                                                             2016 (`/SQ FT)        CHANGE              CHANGE         up by more than 50%,
                                                                                                                                                                                                                Ahmedabad                          2,780                 5%              0%           whereas the city’s average
                                                                                20
                                                                                                                                                                                                            Premium markets                        5,585                 9%              5%           price has moved up by
                                   No. of Quarters
                                                                                16                                                                                                                                                                                                                    only 27%. Steady demand
                                                                                                                                                                                                         PRICE MOVEMENT IN SELECT LOCATIONS                                                           and a limited supply
                                                                                12
                                                                                                                                                                                                                                                      PRICE RANGE IN 12 MONTH 6 MONTH
                                                                                                                                                                                                            LOCATION           MICRO-MARKET                                                           have helped prices in the
                                                                                 8                                                                                                                                                                    H1 2016 (`/SQ FT) CHANGE CHANGE
                                                                                                                                                                                                                                                                                                      premium segment to move
                                                                                                                                                                                                            Ambawadi                     Central            5,500 - 7,500       1%         1%
                                                                                 4                                                                                                                                                                                                                    in this manner
                                                                                                                                                                                                           Navrangpura                   Central            5,500 - 7,500       2%         1%
                                                                                 0                                                                                                                          Mani Nagar                   Central            3,500 - 6,000       6%         2%
                                                                                                                    MAR-14
                                                                                                      DEC-14

                                                                                                                                                           DEC-15
                                                                                             JUN-14

                                                                                                                                                                                  APR-16
                                                                                                                                 JUN-15

                                                                                                                                                                                           JUN-16
                                                                                                                                             SEP-15

                                                                                                                                                                         FEB-16
                                                                                                                                                                                                                Paldi                    Central            4,500 - 6,200       6%         2%
                                                                                                                                                                                                              Naroda                      East              2,000 - 3,000       4%         0%
                                    Source: Knight Frank Research
                                                                                                                                                                                                                                                                                                    •	The price growth in the premium
                                                                                                                                                                                                               Vastral                    East              1,800 - 2,500       2%         1%
                                           FIGURE 7                                                                                                                                                                                                                                                     segment outperformed the city’s
                                                                                                                                                                                                                Nikol                     East              1,800 - 2,500       0%         0%           average price growth. While the
                                              MICRO-MARKET-WISE QTS VS AGE OF INVENTORY
                                                                                                                                                                                                                                                                                                        weighted average price in the city
                                                                                                                                                                                                          Prahlad Nagar                   West              5,000 - 6,500       3%         2%
                                                                                                                                                                                                                                                                                                        grew by 5% YOY in H1 2016, it grew
                                                                                     CENTRAL          EAST               WEST             NORTH             SOUTH
                                                                                                                                                                                                              Satellite                   West              5,500 - 7,200       1%         0%           by 9% in the premium segment
                                                                                 14                                                                                                                            Thaltej                    West              5,000 - 6,000       0%         0%       •	Since 2010, premium segment
                                          Age of unsold inventory in quarters

                                                                                                                                                                                                             Vastrapur                    West              5,000 - 6,200       0%         0%          prices have gone up by more than
                                                                                                                                                                                                                                                                                                       50%, whereas the city’s average
                                                                                                                                                                                                               Bopal                      West              3,500 - 4,800       0%         0%          price has moved up by only 27%.
                                                                                 11                                                                                                                                                                                                                    Steady demand and a limited
                                                                                                                                                                                                           Chandkheda                    North              2,500 - 3,200       2%         1%
                                                                                                                                                                                                                                                                                                       supply have helped prices in the
                                                                                                                                                                                                              Motera                     North              2,800 - 3,600       0%         0%          premium segment to move in this
                                                                                                                                                                                                                Gota                     North              2,800 - 3,600       1%         0%          manner.
                                                                                     8
                                                                                                                                                                                                         Source: Knight Frank Research

                                                                                                                                                                                                         OUTLOOK FOR THE NEXT SIX MONTHS
     The number of quarters                                                          5
                                                                                                                                                                                                          PROJECTIONS                                          H2 2015      H2 2016E    GROWTH
                                                                                         5                                   8                                      11                              14
     to sell the existing unsold                                                                                                                                                                          Launches (units)                                       7,490        9,540       27%
                                                                                                                                              QTS*
     inventory has moved up                   Source: Knight Frank Research
                                                                                                                                                                                                          Sales (units)                                          9,075        10,460      15%
     considerably in the last         •	The high level of unsold inventory is                                                                        8.5. At present, the city has more
                                         still a big concern for Ahmedabad’s                                                                          than 40,000 units in various stages                 Weighted average price (`/sq ft)                       2,730        2,810       3%
     three years and currently
                                         developer community. Despite an                                                                              of construction that still remain                  Source: Knight Frank Research
     stands at 8.5. At present,          improving sales volume in the last                                                                           unsold.                                            •	The positive sentiment in the                    launches and sales will increase by    •	The price growth in the coming six
                                         six months, the unsold inventory                                                                                                                                   residential market due to the                    27% and 15% YOY respectively.             months will remain subdued, as
     the city has more than                                                                                                                   •	Such a scenario will continue to
                                         level has not reduced significantly,                                                                                                                               revival in manufacturing activity,                                                         the huge number of unsold units
                                                                                                                                                 keep prices in check, as developers                                                                       •	We believe that South Ahmedabad
     40,000 units in various             as developers continued to launch                                                                                                                                  the improving business sentiment                                                           currently available in the market
                                                                                                                                                 will be unable to demand a higher                                                                            will continue to witness a subdued
                                         new projects                                                                                                                                                       and the renewed interest in the                                                            will restrict the upward movement
     stages of construction that                                                                                                                 price from homebuyers when there                                                                             sales volume, as its great distance
                                      •	The number of quarters to sell                                                                          is already such a huge unsold stock                        Gujarat International Finance Tec-                                                         in prices. However, prices in the
     are still unsold.                                                                                                                                                                                                                                        from the city centre, the presence
                                         the existing unsold inventory has                                                                       present in the market                                      City (GIFT) city from investors are                                                        premium segment are expected
                                                                                                                                                                                                                                                              of a large number of manufacturing
                                         moved up considerably in the last                                                                                                                                  expected to usher in a double-digit                                                        to continue their upward trend, as
                                                                                                                                                                                                                                                              units and poor infrastructure
                                         three years and currently stands at                                                                                                                                growth in new launches and sales                                                           demand from homebuyers in this
                                                                                                                                                                                                                                                              facilities are expected to restrict
                                                                                                                                                                                                            in H2 2016. We forecast that new                                                           market remains strong.
                                                                                                                                                                                                                                                              homebuyer interest in this zone.

22                                                                                                                                                                                                                                                                                                                                        23
INDIA REAL ESTATE        RESEARCH

     BENGALURU              RESIDENTIAL & OFFICE MARKET

                                Sangeeta Sharma Dutta
                                Assistant Vice President - Research

24                                                               25
INDIA REAL ESTATE                 RESEARCH

                                                                                                                                                             MICRO-MARKET SPLIT OF RESIDENTIAL LAUNCHES
                                  RESIDENTIAL MARKET
                                                                                                                                                             FIGURE 2
                                                                                                                                                             MICRO-MARKET SPLIT OF LAUNCHED UNITS
                                  BENGALURU RESIDENTIAL MARKET LAUNCHES, SALES
                                                                                                                                                                   H1 2015           H2 2015     H1 2016
                                  AND PRICE TRENDS                                                                                                                45%

                                                                                                                                                                  40%
                                  FIGURE 1
                                  BENGALURU MARKET TRENDS                                                                                                         35%

                                                                                                                                                                  30%
                                                      LAUNCHES         SALES         WT. AVG. PRICE (RHS)
                                                                                                                                                                  25%
                                                     40,000                                                                              5,000
                                                                                                                                                                  20%
                                                     35,000                                                                              4,900                    15%

                                                     30,000                                                                              4,800                    10%

                                                                                                                                                                             0%
                                                                                                                                                                             0%
                                                                                                                                                                             0%

                                                                                                                                                                                               22%
                                                                                                                                                                                               26%
                                                                                                                                                                                               27%

                                                                                                                                                                                                           37%
                                                                                                                                                                                                           25%
                                                                                                                                                                                                           22%

                                                                                                                                                                                                                        32%
                                                                                                                                                                                                                        38%
                                                                                                                                                                                                                        42%

                                                                                                                                                                                                                                       11%
                                                     25,000                                                                                                        5%

                                                                                                                                                                                                                                       9%

                                                                                                                                                                                                                                       9%
                                                                                                                                         4,700
                                                                                                                                                                     0

                                                                                                                                                 ` / sq ft
                                                     20,000                                                                              4,600
                                   Number of units

                                                                                                                                                                             CENTRAL           EAST         NORTH         SOUTH          WEST
                                                     15,000                                                                              4,500
                                                                                                                                                             Source: Knight Frank Research

                                                     10,000                                                                              4,400
                                                                                                                                                                      H1 2015:                         H2 2015:                  H1 2016:
                                                      5,000                                                                              4,300
                                                                                                                                                                    21,400 units                      24,190 units              24,281units
                                                         0                                                                               4,200
                                                                 H1 2014   H2 2014       H1 2015        H2 2015   H1 2016    H2 2016 E
                                                                                                                                                             •	The southern zone of the city,                 expected to bounce back on the           North Bengaluru, touted to
                                  Source: Knight Frank Research                                                                                                 which had witnessed a somewhat                 prospective buyers’ radar.
                                                                                                                                                                waning developer interest in H1                                                         have an immense potential
                                                                                                                                                                                                             •	East Bengaluru’s share in the total
                                  •	The first half of the year (H1 2016)                             •	We expect the market to remain                         2015, accounted for a whopping
                                                                                                                                                                                                                number of new launches, which has       to grow as a residential
                                     saw the Bengaluru residential                                       steady in the next six months,                         42% share in the total number of
                                     market recover sufficiently from                                    owing mainly to the large quantum                      new launches in H1 2016. This
                                                                                                                                                                                                                been observed to rise steadily in       destination on account
                                                                                                                                                                                                                the past year, reinstated its growth
                                     the setback that it had suffered                                    of office space transacted in the                      could be attributed to the number
                                                                                                                                                                                                                potential with a 27% share in H1        of its good infrastructure,
                                     in H1 2015. While the number of                                     city during H1 2016, as well as the                    of residential projects that were
                                     new launches continued to remain                                    projected completion of the much-                      launched in the peripheral locations,
                                                                                                                                                                                                                2016 from 22% in H1 2015.               saw its share of
                                     somewhat restrained, given the                                      awaited Phase 1 of the metro rail,                     such as Electronics City and off-            •	On the other hand, West Bengaluru       new launches shrink
                                     cautious market environment, it                                     which is expected to improve the                       Sarjapur Road. Besides, positive                maintained its consistency and
                                     surpassed the number of launches                                    connectivity with several micro-                       sentiments in the IT/ITeS sector                continued to account for a 9%           considerably in H1 2016,
                                     in H1 2015 by a satisfactory 13%.                                   markets of the city. We estimate                       seem to have led to the resurgence              share H1 2016 – the same quantum        which could be attributed
                                                                                                         new launches to firm up by 4% in                       of residential development in this              of new launches as in H1 2015. With
                                  •	The city’s sales volume, on the
                                                                                                         H2 2016, compared to H2 2015.                          region.                                         the East–West metro rail corridor       to factors such as high
                                     other hand, remained steady and in
                                                                                                                                                                                                                becoming operational, connecting        land cost and relatively
                                     a much stronger position than the                                •	The sales volume is also expected                   •	North Bengaluru, which had
     The Bengaluru residential                                                                                                                                                                                  several key locations, we foresee
                                     new launches. Notwithstanding the                                   to be quite steadfast on a year-                       witnessed the highest number of
                                                                                                                                                                                                                the number of new launches picking      expensive property prices.
     market saw a vast               slightly wary market sentiment, end-                                over-year (YOY) basis, though it is                    new launches in H1 2015, saw its
                                                                                                                                                                                                                up in the forthcoming months.           In H1 2016, the region
                                     user demand boosted sales, and an                                   anticipated to witness a slight dip of                 share shrink considerably in H1
     improvement in H1 2016,
                                     increase of 18% was observed in                                     5% in H2 2016 over H2 2015.                            2016. It declined from a sizable             •	The eastern zone of the city had        accounted for the highest
     given the setback that it       H1 2016 as compared to its dismal                                                                                          37% in H1 2015 to 22% in H1                     the majority of the projects below
                                     performance in H1 2015.
                                                                                                      •	On the price front, we expect
                                                                                                                                                                2016. While the region was touted               the `2.5 mn ticket size in H2 2016,     number of residential units
     had suffered in H1 2015.                                                                            a measured growth in H2 2016
                                                                                                                                                                to have an immense potential to                 accounting for 43% of the total         priced above the ticket
     While the number of new      •	Meanwhile, weighted average prices                                  compared to H2 2015. The period is
                                                                                                                                                                grow as a residential destination on            number of new launches in that
                                     continued to scale upwards at a                                     estimated to witness a 3% increase
                                                                                                                                                                account of its good infrastructure,             segment, while, in contrast, North      size of `10 mn. However,
     launches increased by           gradual pace and saw an increase                                    in the annual weighted average
                                                                                                                                                                factors such as high land cost and              Bengaluru witnessed the launch of       with several office projects
     13% on a YOY basis, the         of 3% in H1 2016 compared to H1                                     price.
                                                                                                                                                                relatively expensive property prices            the most number of residential units
                                     2015. The increase in construction
                                                                                                                                                                were responsible for bringing down              priced above the ticket size of `10     ready to be operational,
     city’s sales volume saw a       costs and statutory dues, among
                                                                                                                                                                its share in H1 2016. However,                  mn – to the tune of around 59%.         the region is expected
     stronger recovery, at 18%.      other factors, have led to this price
                                                                                                                                                                with several office projects ready              Notably, locations such as Hennur
                                     appreciation.
                                                                                                                                                                to become operational in the                    Road, Kogilu and Hebbal saw a           to bounce back on the
                                                                                                                                                                forthcoming months, creating new                number of new launches in the           prospective buyers’ radar.
                                                                                                                                                                employment hubs, the region is                  premium housing segment.

26                                                                                                                                                                                                                                                                                     27
INDIA REAL ESTATE                  RESEARCH

                                    FIGURE 3                                                                                                MICRO-MARKET                                              LOCATIONS
                                    TICKET SIZE SPLIT OF LAUNCHES DURING H1 2016
                                                                                                                                               CENTRAL     M.G. Road, Lavelle Road, Langford Town, Vittal Mallya Road, Richmond Road
                                    100%
                                     90%                                                                                                        EAST       Whitefield, Old Airport Road, Old Madras Road, K.R. Puram, Marathahalli
                                     80%
                                     70%                                                                                                        WEST       Malleswaram, Rajajinagar, Yeshwanthpur, Tumkur Road, Vijayanagar
                                     60%                                                                                                       NORTH       Hebbal, Bellary Road, Hennur, Jakkur, Yelahanka, Banaswadi
                                     50%
                                                                                                                                                           Koramangala, Sarjapur Road, Jayanagar, J.P. Nagar, HSR Layout, Kanakapura Road, Bannerghatta
                                     40%                                                                                                       SOUTH
                                                                                                                                                           Road, Electronics City
                                     30%
                                     20%                                                                                                    BENGALURU METROPOLITAN REGION MAP
                                     10%
                                         -
                                                  < `2.5 MN      `2.5 - 5 MN      `5 - 7.5 MN     `7.5 - 10 MN      `10-20 MN     >-20 MN

                                                       CENTRAL          EAST              NORTH          SOUTH           WEST

                                    Source: Knight Frank Research

                                    MICRO-MARKET-WISE RESIDENTIAL SALES

                                    FIGURE 4
                                    MICRO-MARKET SPLIT OF SALES
                                             H1 2015          H2 2015          H1 2016

                                         45%

                                         40%

                                         35%

                                         30%

                                         25%

                                         20%

                                         15%

                                         10%
                                                       0%
                                                       0%
                                                       0%

                                                                        23%
                                                                        26%
                                                                        29%

                                                                                         29%
                                                                                         25%
                                                                                         22%

                                                                                                            40%
                                                                                                            39%
                                                                                                            40%

                                                                                                                                10%

                                             5%
                                                                                                                                8%

                                                                                                                                9%

                                              0
                                                       CENTRAL            EAST             NORTH                 SOUTH          WEST
     East Bengaluru’s share in
                                    Source: Knight Frank Research
     the total number of new
     launches, which has been
                                               H1 2015:                              H2 2015:                          H1 2016:
     observed to rise steadily               22,234 units                          27,849 units                      26,220 units
     in the past year, reinstated
     its growth potential with
     a 27% share in H1 2016
     from 22% in H1 2015

28                                                                                                                                                                                                                                                        29
INDIA REAL ESTATE                    RESEARCH

                                                                                                                                    MICRO-MARKET SPLIT OF UNDER-CONSTRUCTION
                                                                                                                                    UNITS AS OF JUNE 2016
     METRO PUSH TO WEST BENGALURU

     T
            he eastern and western parts       employment opportunities in the            the metro connectivity proposal
            of Bengaluru showcase              east. Talks with BMRCL are in              was announced in the region.
            two distinct characteristics       process to provide a feeder bus            However, with the metro project
                                                                                                                                                                                                                           A
     of the city. While East Bengaluru         service from Baiyappanahalli               deadlines failing repeatedly,
                                                                                                                                                                                                                           CENTRAL                        0%
     is known as one of the city’s key         to Whitefield. The company is              prospective buyers of residential                                                                                                B
     IT/ITeS hubs, housing the iconic          expecting half a million commuters         properties along the metro nodes                                                                                                 WEST                           9%
     International Tech Park Bangalore         daily from the present 45,000 as           had grown increasingly uncertain                                                                                                 C
     (ITPB) in Whitefield, West Bengaluru      the metro connects with Majestic,          about its completion, deliberating                                                                                               EAST                           25%
     is recognised primarily as an             the nerve centre of the city’s public      over their buying decisions. With                                                                                                D
     industrial hub, accounting for the        transport.                                 the metro now fully functional,                  B        C                                                                      NORTH                          22%
     Peenya Industrial Area – one of                                                      homebuyers who prefer to reside                                                                                                  E
     the largest of its kind in Asia. For a
                                               The advent of the East–West metro
                                                                                          in locations with metro connectivity                                  D                                                          SOUTH                          44%
                                               corridor has been observed to                                                        A
     long time, these two regions have                                                    are assured of the ease of travel
                                               have a considerable impact on
     been separated by socioeconomic                                                      from their residences to their
                                               residential real estate, particularly
     variances and severe traffic                                                         workplaces. With connectivity                                             E
                                               towards the west. Till recently,
     bottlenecks.                                                                         to Central and East Bengaluru,
                                               the residential market in the
                                                                                          where the key employment hubs
     The incongruence between the              western region had struggled to
                                                                                          are located, residents from as
     two key regions of the city is set to     keep pace with the other regions                                                                                                                                           Source: Knight Frank Research
                                                                                          far as Mysore Road now have
     change with the advent of the metro       of the city, while East Bengaluru
                                                                                          an increased scope of working
     rail connectivity. In April 2016, the     remained a preferred market for
                                                                                          in these areas. Further, prices in
     long-awaited and much-delayed             homebuyers employed in the
                                                                                          localities connected by the metro,
     East–West metro rail corridor             IT sector. Although it cannot be
                                                                                          such as Nayandahalli, as well
     became operational. Called the            inferred that the inauguration of                                                    •	South Bengaluru accounts for the            there. Additionally, property
                                                                                          as neighbouring areas, such as
     Purple Line by the Bangalore Metro        the Purple Line brought a sudden                                                        major share of the total number             prices are relatively cheaper in the
                                                                                          Rajarajeshwarinagar and Magadi
     Rail Corporation Limited (BMRCL),         appreciation in real estate prices                                                      of units under construction, to the         peripheral locations in the south,
                                                                                          Road in the west, are expected to
     it is the first complete corridor         or demand, the impending launch                                                         tune of 44%, given that it has been         compared to the other micro-
                                                                                          witness a fair appreciation on the
     cutting across the city and the first     of this line has gradually been                                                         witnessing large-scale residential          markets.
                                                                                          back of a relatively increased sales
     complete line to begin operations         creating a momentum in the real                                                         development in the past years.
                                                                                          volume in the near future. Thus, in                                                   •	The northern and eastern markets
     for the Bangalore Metro.                  estate demand along the western                                                         The region is preferred by potential
                                                                                          addition to easing traffic woes and                                                      have fairly uniform shares of units
                                               fringes of the city, where property                                                     buyers due to its good social
     The 18-km stretch now connects                                                       enabling speedy commuting in the                                                         under construction, with West
                                               prices are currently in the range                                                       infrastructure and the presence
     Nayandahalli on Mysore                                                               East–West corridor, the metro line                                                       Bengaluru gradually emerging on
                                               of `3,500–6,000 per sq ft, an                                                           of employment hubs, leading
     Road in West Bengaluru with                                                          is also envisaged to provide an                                                          the residential market scene.
                                               appreciation of around 7–10% per                                                        developers to launch their projects
     Baiyappanahalli in the east. This                                                    impetus to the real estate market.
                                               annum in the last three years.
     new line is expected to cater to the
     Whitefield-bound workforce from           The areas along the East–West
     the central and western locations,        corridor had been witnessing an
     while concurrently creating more          upsurge in buyer interest ever since
                                                                                                                                    PREMIUM RESIDENTIAL MARKET LAUNCHES, SALES AND PRICE TRENDS

•	On the sales front, a few changes          •	East Bengaluru saw increased                number of residential units in the          MICRO-MARKET                                                  PREMIUM LOCATIONS
   have been observed in the micro-              sales, from a 23% share of the              budget housing segment, thereby
                                                                                                                                               CENTRAL              M.G. Road, Lavelle Road, Langford Town, Vittal Mallya Road, Richmond Road
   market split in the last year.                total sales in H1 2015 to 29%               increasing its attractiveness to the
   While the shares of the western               in H1 2016, owing largely to the            price-conscious buyer.                             EAST                Whitefield, Indiranagar
   and southern regions of the city              employment hubs and social
   remained almost constant, in H1               infrastructure in place in the region.                                                         WEST                Malleswaram, Rajajinagar, Yeshwanthpur
   2016 compared to H1 2015, East                The IT/ITeS office projects along
                                                                                                                                               NORTH                Hebbal, Bellary Road
   and North Bengaluru saw their                 the Outer Ring Road and in the
   shares undergo a substantial                  Whitefield area have contributed                                                              SOUTH                Koramangala, Jayanagar, J.P. Nagar
   variation in H1 2016.                         majorly to the growth in this region.
                                                 Besides, H1 2016 also saw a

30                                                                                                                                                                                                                                                          31
INDIA REAL ESTATE                  RESEARCH

     FIGURE 5                                                                                                                                                                                                                             FIGURE 7
     PREMIUM MARKET TRENDS                                                                                                                                                                                                                   MICRO-MARKET-WISE QTS VS AGE OF INVENTORY
                             LAUNCHES                 SALES                    WT. AVG. PRICE (RHS)
                                                                                                                                                                                                                                                                                CENTRAL    EAST   NORTH    SOUTH             WEST
                             14,00                                                                                                                                       8,700
                                                                                                                                                                                                                                                                               9.8
                             1,200                                                                                                                                       8,600

                                                                                                                                                                                                                                         Age of unsold inventory in quarters
                                                                                                                                                                                                                                                                               9.6
                                                                                                                                                                         8,500
                             1,000
                                                                                                                                                                         8,400                                                                                                 9.4

                                                                                                                                                                                      ` / sq ft
                               800
           Number of units

                                                                                                                                                                         8,300                                                                                                 9.2
                               600
                                                                                                                                                                         8,200                                                                                                  9
                               400
                                                                                                                                                                         8,100                                                                                                 8.8
                               200                                                                                                                                       8,000                                                                                                 8.6
                                0                                                                                                                                        7,900                                                                                                 8.4
                                           H1 2014                    H2 2014                     H1 2015                   H2 2015                 H1 2016
                                                                                                                                                                                                                                                                               8.2
     Source: Knight Frank Research
                                                                                                                                                                                                                                                                                8
  Note: Premium markets include locations where the average ticket size of a residential unit
                                                                                                                                                                                                                                                                                     7.8   8      8.2     8.4          8.6          8.8   9         9.2
  is above ` 20 mn, are in close proximity to the central business district of the city and have
                                                                                                                                                                                                                                                                                                                QTS*
  witnessed new project launches in the preceding three years                                                                                                                                                                                Source: Knight Frank Research

 •	The premium market of Bengaluru,                                                                          face of a subdued market.                                                           •	However, due to the slackening of   •	The quarters to sell unsold inventory                               •	On the other hand, South Bengaluru
    which constitutes locations such                                                                                                                                                                 the premium housing market in the      (QTS) is the number of quarters                                        is one of the worst performing
                                                                                                            •	While H1 2015 was characterised by
    as Lavelle Road, Richmond Road,                                                                                                                                                                  past year, the weighted average        required to exhaust the existing                                       markets, with the largest quantum
                                                                                                               poor sales in the premium housing
    Indiranagar and Malleswaram,                                                                                                                                                                     price growth YOY in the premium        unsold inventory in the market. The                                    of unsold inventory in the city and
                                                                                                               segment owing to cautious market                                                                                                                                                                                                            East Bengaluru is currently
    among others, observed a                                                                                                                                                                         segment saw a marginal decline of      existing unsold inventory is divided                                   the highest QTS, indicating that
                                                                                                               sentiments, H1 2016 witnessed
    substantial increase of 23% in                                                                                                                                                                   1% in H1 2016, as compared to H1       by the average sales velocity of the                                   the pace of sales in this region is     the best performing
                                                                                                               a considerable improvement in
    new launches during H1 2016                                                                                                                                                                      2015.                                  preceding eight quarters in order                                      slower than the other regions of the
                                                                                                               demand for such properties,                                                                                                                                                                                                                 market of the city, with
    as compared to H1 2015, when                                                                                                                                                                                                            to arrive at the QTS number for                                        city, as many projects are located
                                                                                                               clocking an increase of 35% as
    developers had refrained from                                                                                                                                                                                                           that particular quarter. A lower QTS                                   in distant markets with a lack of       the lowest QTS, signifying
                                                                                                               against the same period last year.
    launching premium projects in the                                                                                                                                                                                                       indicates a healthier market.                                          infrastructure, and have been left
                                                                                                                                                                                                                                                                                                                                                           that the market has been
                                                                                                                                                                                                                                                                                                                   idle.
                                                                                                                                                                                                                                         •	The QTS for Bengaluru has
                                                                                                                                                                                                                                                                                                                                                           witnessing a substantial
                                                                                                                                                                                                                                            been increasing gradually since                                     •	North Bengaluru has a lower QTS
                                                                                                                                                                                                                                            September 2013, and currently                                          and age of inventory than the South,    traction in recent times.
                                                                                                                                                                                                                                            stands at eight quarters. However,                                     thereby having the potential to
  PREMIUM RESIDENTIAL MARKET LAUNCHES, SALES AND PRICE TRENDS                                                                                                                                                                                                                                                                                              The presence of several
                                                                                                                                                                                                                                            the QTS for the premium markets                                        perform better in the forthcoming
                                                                                                                                                                                                                                            in the city is much higher – at 11                                     months. We expect this market to        large employment hubs,
 FIGURE 6
                                                                                                                                                                                                                                            quarters currently. This is mainly                                     gain momentum once the office
 QUARTERS TO SELL (QTS) UNSOLD INVENTORY ANALYSIS                                                                                                                                                                                                                                                                                                          good social infrastructure,
                                                                                                                                                                                                                                            due to the relatively slow rate of                                     sector gains prominence in the near
                             BENGALURU                      PREMIUM MARKETS                                                                                                                                                                 sales observed in the premium                                          future.                                 substantial availability
                  12.0                                                                                                                                                                                                                      housing segment in the past.
                                                                                                                                                                                                                                                                                                                •	Meanwhile, despite having a higher      of housing in various
                                                                                                                                                                                                                                         •	East Bengaluru is currently the                                        QTS than its eastern and northern
                  10.0
                                                                                                                                                                                                                                            best performing market of the city,                                    counterparts, West Bengaluru
                                                                                                                                                                                                                                                                                                                                                           budget sizes and the
                         8.0
                                                                                                                                                                                                                                            with the lowest QTS, signifying that                                   holds much potential to perform         recently operational
No. of Quarters

                                                                                                                                                                                                                                            the market has been witnessing                                         better in the forthcoming months.
                                                                                                                                                                                                                                            a substantial traction in recent                                       The metro rail, operational since
                                                                                                                                                                                                                                                                                                                                                           metro connectivity
                         6.0
                                                                                                                                                                                                                                            times. The presence of several                                         last year, and the recently opened      with the central and
                                                                                                                                                                                                                                            large employment hubs, good                                            East–West corridor are expected to
                         4.0
                                                                                                                                                                                                                                            social infrastructure, substantial                                     be prime factors for this potential.
                                                                                                                                                                                                                                                                                                                                                           western parts of the city
                         2.0
                                                                                                                                                                                                                                            availability of housing in various                                     However, West Bengaluru still does      are some of the prime
                                                                                                                                                                                                                                            budget sizes and the recently                                          not have a sufficient inventory and
                                                                                                                                                                                                                                            operational metro connectivity with                                    sales volume compared to the other
                                                                                                                                                                                                                                                                                                                                                           factors that facilitated this
                         0.0
                                                                                                                                                                                                                                            the central and western parts of the                                   zones of the city.                      development.
                                                                      AUG-14
                                 DEC-13

                                          FEB-14

                                                             JUN-14

                                                                                                                                                                    APR-16
                                                                                         DEC-14
                                                   APR-14

                                                                                                              APR-15
                                                                                                   FEB-15

                                                                                                                                                                             JUN-16
                                                                                OCT-14

                                                                                                                                AUG-15
                                                                                                                       JUN-15

                                                                                                                                                           FEB-16
                                                                                                                                                  DEC-15
                                                                                                                                         OCT-15

                                                                                                                                                                                                                                            city are some of the prime factors
                                                                                                                                                                                                                                            that facilitated this development.
 Source: Knight Frank Research

32                                                                                                                                                                                                                                                                                                                                                                                         33
INDIA REAL ESTATE                    RESEARCH

PRICE MOVEMENT IN H1 2016                                                                                                           OUTLOOK FOR THE NEXT SIX MONTHS
                                                                                                                                     PROJECTIONS                                  H2 2015    H2 2016E     GROWTH
WEIGHTED AVERAGE PRICE MOVEMENT IN BENGALURU
                                                                                                                                     Launches (units)                              24,190      25,099        4%
        LOCATION                PRICE RANGE IN H1 2016 (`/SQ FT)               12 MONTH CHANGE             6 MONTH CHANGE
                                                                                                                                     Sales (units)                                 27,849      26,447        -5%
         Bengaluru                             4,805                                       3%                      1%
                                                                                                                                     Weighted average price (`/sq ft)               4,780      4,902         3%
     Premium markets                           8,549                                      -1%                      0%               Source: Knight Frank Research

•	Price appreciation across most            range of price appreciation during              growth was pegged at 3%, the
   locations in Bengaluru has been           the period has been within 1–4%.                premium housing segment saw
   rather tepid during the last 12                                                           a slight decline of 1%. This could     •	While H1 2016 has been a period        •	West and East Bengaluru are
                                           •	The premium housing segment
   months, ranging between 3–7%.                                                             be attributed to the large unsold         of steady recovery, with new              expected to witness increased
                                              observed a slower rate of growth
   The growth in price slowed down                                                           inventory that has been building up,      launches and sales improving over         developer and buyer interest, chiefly
                                              in its weighted average price in
   further in the last six months,                                                           owing to the increasing QTS.              H1 2015, we expect the second             due to infrastructure development,
                                              the last 12 months, compared
   primarily due to the huge unsold                                                                                                    half of the year to remain constant,      while locations around the Outer
                                              to the growth in the city’s overall
   inventory present in the market. The                                                                                                without drastic upswings. Although        Ring Road will witness an increased
                                              price. While the city’s overall price
                                                                                                                                       developments such as the Real             traction due to their proximity to
                                                                                                                                       Estate Regulatory Authority (RERA)        employment hubs.
PRICE MOVEMENT IN SELECT LOCATIONS                                                                                                     bill are positive reinforcements
                                                                                                                                                                              •	On the price front, we expect the
                                                                                                                                       that will boost the market, their
                                                                    PRICE RANGE IN H1 2016            12 MONTH       6 MONTH                                                     overall weighted average price in
             LOCATION                     MICRO-MARKET                                                                                 impact would take some time, as
                                                                           (`/SQ FT)                   CHANGE        CHANGE                                                      Bengaluru to witness a sluggish
                                                                                                                                       developers tend to adopt a wait-
                                                                                                                                                                                 growth of 3% in H2 2016 compared
           Langford Town                     Central                                  15,000–21,000      0%             0%             and-watch approach whenever
                                                                                                                                                                                 to H2 2015, owing to the large
                                                                                                                                       any new bill or law comes into                                                     While H1 2016 has been a
            Lavelle Road                     Central                                  22,000–30,000      0%             0%                                                       quantum of inventory that needs to
                                                                                                                                       play. However, market sentiments
                                                                                                                                                                                 be offloaded.                            period of steady recovery,
                                                                                                                                       will remain largely positive,
             K.R. Puram                        East                                     4,000–6,750      4%             2%
                                                                                                                                       owing primarily to the large-scale                                                 with new launches and
                                                                                                                                       transactions in the office sector.
              Whitefield                       East                                     4,500–8,500      0%             0%                                                                                                sales improving over H1
                                                                                                                                    •	The projected number of new
             Marathahalli                      East                                     4,500–7,100      3%             1%                                                                                                2015, we expect the
                                                                                                                                       launches in H2 2016 will exceed
             Indiranagar                       East                                    9,000–12,500      0%             0%             those of H2 2015 by 4%, while                                                      second half of the year to
                                                                                                                                       sales will see a dip of 5%. To
            Yeshwanthpur                       West                                    6,500–10,800      5%             1%
                                                                                                                                                                                                                          remain constant, without
                                                                                                                                       avoid uncertainty, most buyers
                                                                                                                                       currently prefer ready-to-occupy                                                   drastic upswings. West
           Malleshwaram                        West                                    9,000–13,300      5%             1%
                                                                                                                                       projects located in better markets,
                                                                                                                                                                                                                          and East Bengaluru are
              Rajajinagar                      West                                    8,500–14,000      0%             0%             with improved physical and
                                                                                                                                       social infrastructure, and good                                                    expected to witness
            Tumkur Road                        West                                     4,000–5,100      3%             1%             connectivity. Thus, integrated
                                                                                                                                                                                                                          increased developer and
                                                                                                                                       developments in locations with
              Yelahanka                       North                                     4,500–7,500      0%             0%             good connectivity are likely to                                                    buyer interest, chiefly
                                                                                                                                       witness a good traction in H2 2016.
                Hebbal                        North                                     5,000–9,800      0%             0%                                                                                                due to infrastructure
                Hennur                        North                                     4,500–7,500      7%             4%                                                                                                development, while
             Thanisandra                      North                                     4,100–7,500      5%             1%
                                                                                                                                                                                                                          locations around the
                                                                                                                                                                                                                          Outer Ring Road will
           Sarjapur Road                      South                                     4,500–7,500      6%             3%
                                                                                                                                                                                                                          witness increased traction
           Electronics City                   South                                     4,000–6,500      0%             0%
                                                                                                                                                                                                                          due to their proximity to
         Kanakapura Road                      South                                     4,300–6,000      0%             0%
                                                                                                                                                                                                                          employment hubs.
        Bannerghatta Road                     South                                     4,200–7,500      4%             2%
Source: Knight Frank Research

34                                                                                                                                                                                                                                                     35
INDIA REAL ESTATE                    RESEARCH

                                    OFFICE MARKET                                                                                     FIGURE 2
                                                                                                                                      NEW COMPLETIONS AND TRANSACTIONS

                                    BENGALURU OFFICE MARKET STOCK, NEW                                                                            NEW COMPLETION       TRANSACTIONS

                                                                                                                                                 7.0
                                    COMPLETIONS, TRANSACTION AND VACANCY TRENDS
                                                                                                                                                 6.0
                                    FIGURE 1
                                                                                                                                                 5.0
                                    OFFICE SPACE STOCK AND VACANCY LEVELS
                                                                                                                                                 4.0

                                                                                                                                      mn sq.ft
                                                  STOCK        OCCUPIED STOCK    VACANCY (RHS)

                                                                                                                                                 3.0
                                                 140                                                                           12%
                                                                                                                                                 2.0

                                                 120
                                                                                                                               10%               1.0

                                                 100                                                                                              0
                                                                                                                                 8%
                                                                                                                                                       H1 2014        H2 2014     H1 2015      H2 2015     H1 2016     H2 2016 E
                                                  80
                                     mn sq.ft.

                                                                                                                                 6%   Source: Knight Frank Research

                                                  60                                                                                  • The total office space transacted in H1 2016 was 6.1 mn sq ft, with new office
                                                                                                                                 4%   space completions complementing the market at 6 mn sq ft.
                                                  40

                                                                                                                                 2%
                                                  20
                                                                                                                                      SECTOR ANALYSIS
                                                   0                                                                             0%
                                                                                                                                      •	The IT/ITeS sector—the key demand                    transactions in the other services
                                                          H1 2014    H2 2014    H1 2015     H2 2015     H1 2016    H2 2016 E
                                                                                                                                         driver of the city’s office market,                  sector include companies such
                                    Source: Knight Frank Research                                                                        whose share in transactions had                      as Ernst & Young inking an office
                                    •	Bengaluru retained the top slot                       while the occupied stock recorded           fairly lessened in H1 2015—strove                    space deal on Marathahalli Outer          The IT/ITeS sector, whose
                                                                                                                                         to maintain its resurgent stance                     Ring Road and Reliance Jio
                                       for the highest office space                          119.4 mn sq ft, making it the office                                                                                                       share in transactions had
                                       transactions in the country in the                    market with the largest occupied            in H1 2016. The sector accounted                     Infocomm taking up 130,000 sq ft of
                                       first half of 2016 (H1 2016). The                     stock in the country.                       for 58% of the total transactions in                 office space in Whitefield.               fairly lessened in the last
                                                                                                                                         H1 2016, as compared to H1 2015,
                                       city’s office market clocked a total
                                                                                          •	Vacancy rates, which had been                                                                  •	Meanwhile, a few major                   few quarters, strove to
                                       transaction space of 6.1 mn sq ft                                                                 which had seen a 50% share. This
                                                                                                                                                                                               transactions were recorded in the
                                       during the period January–June
                                                                                             declining steadily over the years           could be attributed to the large-                                                              maintain its resurgent
                                                                                             owing to consistent transactions                                                                  manufacturing sector in H1 2016.
                                                                                                                                         size deals transacted by IT majors,
     The Bengaluru office              2016, almost matching the 6.07 mn
                                                                                             and restrained new completions,                                                                   The sector accounted for a minimal       stance in H1 2016. The
                                       sq ft of space transacted during the                                                              such as HP India (400,000 sq ft)
                                                                                                                                                                                               share of 7% of the total office space
     market continued to lead          corresponding period in 2015.
                                                                                             continued to remain at 7% in                and Google (100,145 sq ft), among                                                              sector accounted for 58%
                                                                                             H1 2016, despite the substantial                                                                  transactions in H1 2016, showing
                                                                                                                                         others.
     the way, with the highest      •	Bengaluru attracted substantial                       number of new completions this                                                                    a slight decline over its share in       of the total transactions
                                                                                                                                      •	The share of the other services                       H1 2015. The BFSI sector, too,
     office space transactions         occupier interest, the demand                         year.                                                                                                                                      in H1 2016 as compared
                                       being driven primarily by the IT/ITeS                                                             sector, of which the e-commerce                       accounted for a mere 4% share
     in the country. It also           sector, with big players such as
                                                                                          •	In the forthcoming months, the              sector is a part, has dropped                         of the transactions in H1 2016,          to H1 2015, which had
                                                                                             office space demand in Bengaluru            from 36% in H1 2015 to 30% in                         including a deal by JP Morgan
     witnessed the infusion of         Google, Infosys, and HP occupying
                                                                                             is expected to remain upbeat,                                                                                                              seen a 50% share. Despite
                                       large office spaces.                                                                              H1 2016. Although the IT/ITeS                         Chase.
     a whopping 6 mn sq ft                                                                   driven by corporate occupiers and           sector took the lead in the share                                                              fewer e-commerce
                                    •	Another major milestone achieved                      startups looking to expand, as              of office space transactions in
     of new office space, the          by the office sector in Bengaluru                     well as investors, both global and                                                                                                         transactions in H2 2015
                                                                                                                                         H1 2016, e-commerce still holds
     highest in six years after a      during this period is the quantum                     domestic, who are considering               great potential. Despite fewer                                                                 as compared to the large-
                                       of new completions that entered                       ownership of their operating assets.        e-commerce transactions in H1
     lag that had hit the market.      the market. The city witnessed the                                                                                                                                                               size deals in H1 2015,
                                                                                                                                         2016 as compared to the large-
                                       infusion of a whopping 6 mn sq ft of                                                              size deals in H1 2015, developers                                                              e-commerce still holds
                                       new office space, the highest in six                                                              have recognised that the additional
                                       years after the lag that had hit the                                                                                                                                                             great potential in the
                                                                                                                                         demand from the sector has had a
                                       market, leading potential occupiers                                                               positive effect on the city’s office                                                           forthcoming period.
                                       to turn to pre-leasing deals for large                                                            market. Some of the prominent
                                       space requirements. The new office
                                       completions took the total office
                                       stock to 128.5 mn sq ft in H1 2016,

36                                                                                                                                                                                                                                                                    37
INDIA REAL ESTATE                   RESEARCH

                                    FIGURE 3                                                                                                                        SELECT TRANSACTIONS
                                    SECTOR-WISE SPLIT OF TRANSACTIONS
                                               H1 2015             H2 2015        H1 2016                                                                             OCCUPIER                                        BUILDING                                LOCATION                    APPROX. AREA (SQ FT)
                                     80%
                                                                                                                                                                      Reliance Jio Infocom                            Mindcomp Tech Park                      Whitefield                          130,000
                                     70%                    70%
                                                                                                                                                                      Google                                          Bagmane World Technology Center Marathalli Outer Ring                       100,145
                                     60%                          58%
                                                      50%                                                                                                                                                             (Virgo Block)                           Road
                                     50%
                                                                                                                                                                      HP India                                        Maruthi Concorde Business Park          Hosur Road                          400,000
                                     40%                                                                                  36%                                         Infosys                                         Confident Octans                        Electronics City                    150,000
                                     30%                                                                                              30%
                                                                                                                                                                      GE                                              Prestige Shantiniketan                  Whitefield                          185,000
                                     20%                                                                                        16%
                                                                                                      11% 10%
                                     10%                                                                        7%
                                                                                3% 4% 4%
                                           0
                                                         IT/ITeS                   BFSI*          MANUFACTURING        OTHER SERVICES
                                    Source: Knight Frank Research                                                                                                   BUSINESS DISTRICT ANALYSIS
                                   Note: BFSI includes BFSI support services
                                                                                                                                                                    BUSINESS DISTRICT CLASSIFICATION
                                                 H1 2015:                               H2 2015:                         H1 2016:                                                                BUSINESS DISTRICTS                                                     MICRO-MARKETS
                                               6.07 mn sq ft                           5 mn sq ft                      6.1 mn sq ft
                                                                                                                                                                                                                                             M.G. Road, Residency Road, Cunningham Road, Lavelle Road, Richmond
                                                                                                                                                                         Central Business District (CBD) and off-CBD
                                                                                                                                                                                                                                             Road, Infantry Road

                                   DEAL SIZE ANALYSIS                                                                                                                    Suburban business district (SBD)                                    Indiranagar, Koramangala, Old Airport Road, Old Madras Road

                                   FIGURE 4                                                                                                                              Peripheral Business District (PBD) East                             Whitefield
                                   AVERAGE DEAL SIZE AND NUMBER OF DEALS
                                                                                                                                                                         Peripheral Business District (PBD) South                            Electronics City, Bannerghatta Road
                                               AVERAGE DEAL SIZE (SQ.FT.)         NUMBER OF DEALS (RHS)

                                                                                                                                                                         Peripheral Business District (PBD) North                            Thanisandra, Yelahanka, Devanahalli
                                           90,000                                                                                           120
                                           80,000                                                                                                                        Outer Ring Road (ORR)                                               Hebbal ORR, Marathahalli ORR, Sarjapur Road ORR
                                           70,000
     The average deal size

                                                                                                                                                  Number of deals
                                           60,000                                                                                            80
     remained consistent in                50,000
                                   sq.ft

                                                                                                                                                                     FIGURE 5
                                           40,000
     H1 2016, compared to                  30,000                                                                                            40
                                                                                                                                                                     BUSINESS DISTRICT-WISE TRANSACTIONS SPLIT

     H1 2015. The number of                20,000
                                                                                                                                                                                      H1 2015           H1 2016

                                           10,000                                                                                                                                     80%
     deals, too, was almost                                                                                                                                                                                           69%
                                                  0                                                                                          0                                        70%
     similar for both periods.                           H1 2014             H2 2014        H1 2015         H2 2015       H2 2015

                                                                                                                                                                    Number of units
                                                                                                                                                                                      60%
     Although the average deal     Source: Knight Frank Research                                                                                                                      50%

     size has reduced from         •	The average deal size remained                                  significantly in H1 2016.                                                       40%                                   33%
                                      consistent in H1 2016, coming close
     the figure observed in H2                                                                   •	This shows that, while deals with                                                 30%
                                      to 53,500 sq ft, compared to 54,200                                                                                                                                                              24%
                                                                                                    bigger ticket sizes were inked                                                                                                                  18%
     2015, the number of deals        sq ft in H1 2015. The number of
                                                                                                    in H2 2015, a larger number of
                                                                                                                                                                                      20%                   16% 16%
                                                                                                                                                                                                                                  8%
                                      deals, too, was almost similar for                                                                                                              10%       2% 7%
     have improved significantly                                                                    transactions took place in H1 2016,                                                                                                        5%
                                                                                                                                                                                                                                                          0% 1%      0% 1%
                                      both periods. Although the average                                                                                                                 0
                                                                                                    indicating the quantum of new
     in H1 2016.                      deal size has reduced from the
                                                                                                    completions that entered the market
                                                                                                                                                                                             CBD & Off        SBD       ORR       PBD           PBD        PBD       PBD
                                      figure observed in H2 2015, the                                                                                                                          CBD                                EAST         SOUTH      NORTH      WEST
                                                                                                    during this period.
                                      number of deals have improved                                                                                                  Source: Knight Frank Research

                                                                                                                                                                                                   H1 2015:                                        H1 2016:
                                                                                                                                                                                                 6.07 mn sq ft                                   6.1 mn sq ft

38                                                                                                                                                                                                                                                                                                               39
INDIA REAL ESTATE                   RESEARCH

                                  PRE-COMMITTED LEASING ON THE RISE

                                  B
BUSINESS DISTRICTS OF BENGALURU         engaluru occupies the             transactions, thus increasing the       the only way these corporates
                                        foremost rank in the country      gap between the demand and              could carry out their office
                                        as the office market with the     supply progressively over the last      space requirements was to pre-
                                  highest office space transactions       five years. Vacancy levels, which       lease space in upcoming office
                                  on an annual basis. This could          were as high as 17% in 2012,            projects in key office markets,
                                  be attributed to the city’s repute      started to decline in tandem with       mainly along the ORR. Other
                                  as one of the most preferred IT/        the high transactions rate and          companies preferred to have
                                  ITeS hubs globally, attracting a        lower supply infusion. This supply      their own space, rather than be
                                  large number of multinational           constriction was mainly as a            located in multitenant projects,
                                  corporations to set up their offices    consequence of the global financial     and commissioned built-to-suit
                                  there. While Bengaluru has several      crisis that deterred developers in      (BTS) facilities. These include
                                  defined business districts, including   launching their office projects. The    e-commerce majors, such as
                                  a satellite township devoted chiefly    negative sentiments in the market       Flipkart and Amazon, which pre-
                                  to the development of the IT            that persisted even after the crisis    committed BTS spaces of 2 mn sq
                                  industry, the commercial hotspots       sailed over, led them to take a         ft and 1.2 mn sq ft respectively in
                                  at present primarily include the        cautious stance and during the          2015, both along the ORR.
                                  Outer Ring Road (ORR), particularly     five-year period of 2011 to 2015, the
                                                                                                                  At present, most office space
                                  on the Sarjapur Road node, and          demand for office space was 52 mn
                                                                                                                  developers have a waiting period
                                  Whitefield. The ORR houses several      sq ft, while the new office space
                                                                                                                  of six months to two years for
                                  major international IT players,         completions stood at a dismal
                                                                                                                  their clients, creating an upward
                                  such as IBM, Intel, Accenture and       39 mn sq ft. As a result of such
                                                                                                                  pressure on rentals in key office
                                  Cisco, and has been increasingly        trends, the vacancy rate recorded a
                                                                                                                  markets. This alarming state of
                                  preferred by corporates due to          low of 7% by the end of first half of
                                                                                                                  supply lag may result in companies
                                  factors such as proximity to the        the year 2016 (H1 2016).
                                                                                                                  looking at Grade B office space
                                  CBD and major residential markets,
                                                                          However, notwithstanding the            or even opting for offices in less
                                  access to large talent pools, the
                                                                          dearth of ready office space,           favourable locations on a short-
                                  availability of contiguous land
                                                                          Bengaluru continued to display          term basis, paying a premium rent.
                                  parcels, connectivity to the airport
                                                                          the strength of its office market       This shift in the market towards
                                  and the presence of hotel and retail
                                                                          and persistently attracted more         pre-committed office space will
                                  projects.
                                                                          occupiers. While some of these          be instrumental in deciding the
                                  While the city continued to reel in     occupiers were new entrants into        future course of action adopted
                                  corporate occupiers, both national      the market, including e-commerce        by developers as well as potential
                                  and foreign, its key office markets     players, the majority of them were      occupiers, who might just choose
                                  gradually began to be depleted          companies that wanted to carry          to set up office in another city.
                                  of its ready office space. The          out expansion plans or consolidate
                                  new office supply that came into        their offices in anticipation of
                                  the market was staggered and            growing requirements. Due to
                                  could not match up to the high          the space crunch in the market,

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