Real Estate Capital Markets: Predictions for 2013

Transcription

1 Real Estate Capital Markets: Predictions for 2013 In 2013, the availability of debt capital is likely to increase in real estate projects whilst the flow of equity capital will remain more or less stable. As there are additional cuts expected in cash reserve ratio (CRR) and repo rates that will infuse more liquidity into the system, the bid-ask spreads will also decrease, increasing overall transaction volume in Cross-border flow of capital will begin to make a gradual comeback in the year ahead. Cap rates for office and retail properties are likely to descend to 10.5% and 11.5% from 11% and 12%, respectively. Investors will focus more on transparency, governance and liquidity before investing. Given the on-going challenges that the Indian real estate sector faces on these fronts, very few development companies will be successful on the public equity markets. Nevertheless, private equity (PE) deals volumes will increase, and there will be more M&A activity within the PE industry. A number of vintage funds who have invested during will have to look at exiting in 2013, some of them at low internal rate of return (IRR). Given the overall uncertainties, these funds may look at postponing their exits to Insurance firms will start investing directly in low-risk, income producing office real estate. Investment bidders per property will increase, this time around with lower return expectations. Investment periods of funds will reduce from five years to four years. In 2013, after a lull of two years, banks are likely to start offering construction finance to residential projects with approvals. They will also be slightly more flexible on interest rates, collaterals, loan-tovalue (LTV) and upfront fees. Established funds are expected to get back into the fund raising mode after a three-year hiatus. Developers with longer operating history such as Oberoi Realty, Sobha Developers and Prestige Estates will continue to find it easier to raise funds. This is because these developers have managed to grow effectively over the years and have increased predictability of income. With the accent for 2013 remaining firmly on local expansion, it is unlikely that any major developer will venture out to expand nationally. Also, we will see developers focusing more on joint ventures with landlords rather than on buying land. In 2013, we will see most PE deals being structured to give the investor the first preference to cash flows. Most real estate PE investment will be focused on Tier I cities. Funds with a good track record that have a strategy to target a narrow asset class within specific locations such as the last mile funding for residential houses under construction projects in Tier 1 cities and having strong delivery teams will be able to raise funds more easily. Regulatory authorities will increase their scrutiny of private fund raising offerings and closely monitor if the funds raised by the companies are being used for stated objectives. PE funds will raise distressed real estate funds and get traction from bank non-performing assets (NPAs) and asset reconstruction companies (ARCs). A number of new domestic real estate PE funds backed by corporate entities are likely to be launched in Also, large family offices will now begin creating dedicated real estate teams. What s New!! The new development plan by Ahmedabad Urban Development Authority (AUDA) has proposed to create a new affordable housing zone for the city and has raised the Floor Space Index (FSI) across different pockets of the city in February Green Wall TERI (The Energy Research Institute) and OTDC (Odisha Tourism Development Corporation Ltd) signed a MoU to develop a sustainable tourist circuits & destinations in Odisha. Deal of the Month Prestige Estates and KL Hitec Secure Print has bought 5.8 acres of land in Hitec City, Hyderabad in a joint venture. They will develop a luxury residential project of 1.2 million sq ft on the site.

2 Pulse Research Dynamics 2012 PE fund terms such as waterfall structure, carried interest, general partner commitment and management fees will Monthly change to Real address Estate Monitor - Grade March A 2013 investor concerns such as governance, transparency, reporting and operating controls post the global financial crisis. Limited partners will scrutinise fund platforms a lot more carefully before investing on the heels of previous negative experiences with issues such as integrity of the general partner and quality and sustainability of earnings. Many more funds will adopt a conservative cash flowdriven investment approach and focus on investing in income producing office assets, with an accent on asset repositioning, refinancing and refurbishment. Figure 1: Financial Indicators Rental Value Capital Value Office Retail Residential Delhi NCR Mumbai Bangalore Chennai Pune Hyderabad Kolkata We expect new guidelines for Non-Banking Financial Institutions (NBFCs) and Housing Finance Companies (HFCs) to assist in pushing funding for the housing sector in There will be more liquidity available in the housing finance market as rules for raising external commercial borrowings will be relaxed for HFCs and with SEBI allowing debt funds to invest an additional 10% in HFCs. HFCs will also look at tapping the qualified institutional placement (QIP) market to raise funds in Ramesh Nair Managing Director-West India

3 Bangalore In February, Bangalore continued to observe modest leasing activity in the office sector. Stable demand from potential occupiers and absence of new completions marginally decreased the vacancy in the city. Major transactions in the included TATA Aerospace and Josiah Technologies both leasing space in Shailendra Tech Park at Whitefield, and Flipkart renting space in Esteem Asrani at Koramangala. Although the rents remained stable on the back of continued demand and controlled supply, the capital values increased marginally across all sub-markets. Consumer demand for retail sector remained steady in the last couple of s, causing it to increase the retail demand in February. The occupancy level of the city rose marginally due to this. Rents, as well as capital values remained stable across all the submarkets of Bangalore. Bangalore's residential market exhibited continued steady demand in February. The city witnessed a moderate number of launches. The landmark projects launched during the included Prestige West Woods by Prestige Group on Magadi Road at Rajajinagar, Brook Woods by Pashmina Developers on Old Madras Road (OMR) and Indraprastha by Sobha Developers at Rajajinagar. The city continued to witness the shortage of ready to move in apartments. With a forecast to stabilise in 2013, capital values increased marginally across all submarkets in the city. per Outer Ring Road (North) ,500 6,500 Old Airport Road ,000 7,000 Outer Ring Road (Eastern Stretch) ,700 6,000 Old Madras Road ,000 3,500 Electronic City ,500 3,000 Retail Rents Capital Value per Koramangala ,000 16,000 Indiranagar ,000 18,000 New BEL Road ,000 10,000 Commercial Street ,000 20,000 Jayanagar ,000 15,000 INR per for a 1,000 sq ft two-bhk apartment Old Madras Road 12,000 16,000 5,000 6,000 Indiranagar 18,000 20,000 10,000 20,000 Bellary Road 10,000 14,000 3,000 7,000 Hosur Road 10,000 14,000 3,000 5,500 Whitefield 13,000 16,000 3,000 7,000 Tumkur Road 7,000 11,000 3,000 5,000 Kanakapura Road 8,000 12,000 3,000 5,500 Mysore Road 8,000 10,000 2,800 3,500 >> According to Deputy Chief Minister (CM) R Ashok, the Karnataka State Government (KSG) is going to set up two more satellite bus stands in Bangalore to decongest it s surrounding areas. At a cost of INR 270 million, a hi-tech satellite bus stand will come up in Peenya, from where 1,172 buses will leave towards Mangalore, Tumkur, Uttara Kannada and other districts. Another satellite bus stand will come up in Kolar Road, from where buses towards Kolar will leave.

4 Chennai Chennai recorded moderate leasing activity in February with majority of the deals happening in its Special Economic Zones (SEZs). The major transactions over the included Maveric Systems leasing space in DLF IT SEZ at Mount Poonamallee Road; ADP taking space in an IT park in Guindy; and Mindtree, LatentView Analytics and Datacert renting space in Ramanujan IT SEZ at Taramani OMR. Occupancy levels continued to improve in the city on the absence of new completions. Rents and capital values remained stable during the. With the right mix of international, national and local brands, Phoenix Market City continued to sustain robust foot falls during February. With the existence of home-grown brands such as RMKV, Poppat Jamals, Malabar Gold and Nathella attracting its loyal customers, the mall is experiencing synergetic effects, with international and domestic brands complementing each other. Neighbouring one of the dense residential locations with high Socio Economic Classes (SEC) A and B population, the retailers will expect to see good conversion rates in this mall. Going forward, Phoenix Market City is expected to see more such local brands expanding their operations in the upcoming malls. Innovative offers from developers in Chennai continued to attract home buyers during February. FAIRPRO 2013 organised by the Confederation of Real Estate Developers' Association of India (CREDAI) received encouraging response with buyers booking around 250 units during the three-day property fair. Some of the prominent launches during the were NRD Towers by Asvini Foundation near Poonamalle, Esta by Arihant at Mogappair and Panchsheel, as well as the maiden residential project by Kochar Homes at Ambattur. Rents and capital values remained stable during the. per Mount Road ,000 15,000 RK Salai ,000 15,000 Pre-toll OMR ,000 6,500 Post-toll OMR ,500 5,000 Guindy ,000 9,000 Ambattur ,250 4,500 Retail Rents (High Streets) Capital Value per T. Nagar ,000 15,000 Nungambakkam ,000 16,000 Velachery ,000 12,000 Pre-toll OMR ,000 11,000 Anna Nagar ,000 13,000 LB Road (Adyar) ,500 13,500 INR per for a 1,000 sq ft two-bhk apartment Adyar 20,000 30,000 10,000 17,000 Medavakkam 7,000 14,000 3,600 5,000 Tambaram 6,000 12,000 3,500 4,500 Anna Nagar 15,000 25,000 9,000 14,000 Porur 5,000 10,000 3,600 5,800 Sholinganallur 9,000 12,000 4,250 5,250 >> Announced during the last budget, the introduction of 100 mini buses that will run as feeder services and also complement the regular services is expected to get implemented soon. With no progress on the Chennai monorail plans, mini buses will provide a temporary transport solution to the city.

5 Delhi Delhi continued to observe stable demand in February, with increase in new enquires. Tenants were cautious about their real estate expenses and preferred suburban locations on account of good quality space and competitive rentals. The continued healthy occupier demand and absence of new completions further decreased the vacancy in the city. Some of the major transactions in the included Tetra Pak India leasing space in Gurgaon, and Telenor and Marsh both renting space in the CBD. Rents and capital values remained stable across all submarkets, except the CBD where it increased marginally. Over the, the demand remained stable in Delhi. High streets and select quality malls continued to be the preferred choice of retailers. In addition, upcoming malls observed good precommitments because of less vacancy in existing quality malls. Rents and capital values both remained stable in all submarkets. Some of the notable transactions in February included Reliance Mart leasing space in Ghaziabad, Geox taking space in West Delhi and Manyavar renting space in Faridabad. Rents remained stable in all the submarkets. However, capital values witnessed marginal increase in select precincts of the city. The demand for residential units continued to remain stable over the. Major launches during February included Florence Estate by Krrish Group in Gurgaon, Sunworld Vandita by Sunworld Infrastructure in Noida and Willow 162 by Agarwal Associates in Ghaziabad. Rents and capital values remained stable across all submarkets in the city. per Barakhamba Road ,000 35,000 Jasola ,000 21,000 DLF Cybercity NA MG Road ,000 18,500 Golf Course Road ,000 15,000 Sohna Road ,500 8,000 Retail Rents Capital Value per South Delhi ,000 30,000 West and North Delhi ,000 23,000 Gurgaon-MG Road ,000 22,000 Rest of Gurgaon ,000 14,000 Noida ,000 25,000 Ghaziabad ,500 16,000 INR per for a 1000 sq ft 2BHK apartment Golf Course Road 22,000 32,000 12,000 16,000 Sohna Road 15,000 20,000 5,800 7,500 Golf Course Extension Road 16,000 22,000 7,500 9,500 NH 8 14,000 19,000 3,900 5,000 Dwarka Expressway NA 5,000 6,000 Noida- Greater Noida Expressway 12,000 14,000 4,000 5,500 Noida City 12,000 14,500 4,500 6,000 Indirapuram 10,000 12,000 4,000 4,800 NH 24 7,000 9,000 2,400 3,200 >> According to a recent directive by the Department of Town and Country Planning (DTCP), private developers will now have to inform flat owners or investors about any change in the layout plan of the projects in Gurgaon. The fresh directive is sure to bring transparency as the changes, especially those linked to green belt and open spaces, will not be possible unless the developers have secured concurrence of the flat owners and investors. >> As the city copes with growing housing shortage, Delhi's planning body may allow houses that are built for the poor and middle class to go vertical by tripling the floor area ratio (FAR) from 200 to 600. The Union Urban Development Ministry (UUDM) has asked the Delhi Development Authority (DDA) to increase the FAR and include the revised figure in the soon to be updated Delhi Master Plan 2021.

6 Hyderabad In February, leasing volumes remained slightly low and vacancy decreased across all submarkets. The key transactions in January were: SmartPlay leasing space in KRC Mindspace Building 9, Process Maps renting space in Soft Sol and Indosoft taking space in Cyber Towers, all located in Hitec City submarket. Meanwhile, Honda and Coromandel Infotech leased space at Banjara Hills and TriCore Solutions secured space at Q City, Nanakramguda. There were no new completions over the. Rents and capital values remained stable. Retailers continued to prefer high streets as there was restricted supply of malls in February. The key transactions over the included Di Bella Coffee India (an Australian coffee company) leasing space on Road 2 Banjara Hills and Road 36 Jubilee Hills and Yes Mart renting space on Road 36 Jubilee Hills and Attapur. Meanwhile, People, Van Heusen and Arvind Store took space at Dr AS Rao Nagar. Vacancy in malls remained stable whilst high streets continued to see fast absorption. Rents and capital values remained stable over the. In February, residential sales continued to remain upbeat in Hyderabad. There were no major launches after the launches of Brigade At 7 at Banjara Hills and Safeway Symphony Park Homes on Radial Road near Bharat Heavy Electricals Ltd (BHEL) by Safeway Infra. Rents and capital values increased across all submarkets as newly launched residential projects got sold at a price higher than the market average price over the. per Begumpet ,500 6,500 Banjara Hills ,500 7,500 Hitec City ,000 5,200 Gachibowli ,000 5,000 Uppal ,000 4,000 Shamshabad ,000 4,000 Retail Rents Capital Value per Banjara Hills ,000 13,000 Jubilee Hills ,000 14,000 Secunderabad ,000 10,000 Hitec City ,000 13,000 Kukatpally ,000 12,000 Dilshuknagar ,000 12,000 INR per for a 1,000 sq ft 2BHK apartment Banjara Hills 17,000 22,000 7,500 12,000 Begumpet 12,000 16,000 4,000 5,500 Kondapur 12,000 16,000 3,200 5,000 Tellapur 8,000 12,000 2,800 3,500 Kukatpally 7,000 10,000 3,500 3,800 Miyapur 5,000 6,000 2,400 3,500 >> New Lakdi ka Pul Bridge which connects Lakdi Ka Pul Junction and Masab tank and passes over the railway line leading to Lakdi Ka Pul MMTS Station was opened for traffic in February. >> Hyderabad Metro Rail project is moving at a fast pace as a new pier was raised amidst the peak traffic stretch of Rasoolpura and Begumpet in this.

7 Kolkata In February, leasing activity improved in the Kolkata office market. The vacancy declined marginally with increased transaction activity including leasing, investment and absence of new completions. Some of the major transactions over the included Reliance leasing space in Tower 3B of Ecospace at Rajarhat, Aventis renting space in Apeejay House on Park Street and ICRA taking space outright in Infinity Benchmark at Salt Lake. Marginal increase in rents and capital values were seen in selected precincts in central and secondary submarkets. However, Kolkata generally witnessed stable rents and capital values in February. Leasing activity remained stable during February. Malls and high streets both continued to see healthy activity in select precincts of the city. Some of the prominent transactions in this included Ethnicity renting space in Mani Square Mall, Wills Lifestyle leasing space in Avani Riverside Mall and Turtle taking space in high streets of Gariahat. The vacancy levels in the city declined marginally on the back of the stable retail demand. Wood Square Mall at Narendrapur became operational with high occupancy level. Rents continued to increase in Prime City submarket based on the steady demand of retail spaces. Capital values also increased in select submarkets. The trend of steady sales in residential projects in Kolkata continued in February. The city also witnessed a number of projects being launched. Some of the major launches included Clubtown Gardens near Dunlop and Clubtown Gateway at Rajarhat, both by Space Group and Avani Aspire at the junction of Kona Expressway and NH 6 by Avani Group. In addition, Team Taurus launched The County at Joka after joining hands with Disney Homes promoting apartments with Disney-themed living environment for the children. Rents and capital values continued to increase marginally across all submarkets. per Park Street ,000 19,000 Topsia ,000 11,000 Kasba ,000 11,500 Salt Lake, Sector V ,400 5,500 Rajarhat & New Town ,500 4,800 Retail Rents Capital Value per Elgin Road ,000 29,000 Park Street (high street) ,000 28,000 Salt Lake ,000 20,000 Prince Anwar Shah Road ,000 15,000 Rajarhat & New Town ,000 8,000 Gariahat (high street) ,000 22,000 INR per for a 1,000 sq ft 2BHK apartment Alipore 42,000 50,000 14,000 20,000 Prince Anwar Shah Road 18,000 30,000 8,000 14,000 E M Bypass 15,000 24,000 5,000 9,000 Lake Town 13,000 19,000 3,800 7,500 Behala 8,000 14,000 3,200 5,200 Howrah 6,000 9,000 2,400 4,500 New Town (AA I, II&III) 11,000 17,000 3,300 5,500 Rajarhat 8,000 15,000 2,300 5,200 >> The Airports Authority of India (AAI) has initiated the process to rope in foreign companies for operation and maintenance of Kolkata airport. According to the chairman of AAI, foreign operators such as Changi Airport Group (Singapore) and Flughafen Zurich AG, which run Zurich Airport, have already shown interest for a tie-up for providing the services in a public-private partnership (PPP) model.

8 Mumbai In February, leasing activity was moderate for the office sector. Select pool of occupiers relocated from their existing offices or renewed the lease agreement on the back of uncertain macroeconomic conditions. The CBD and Eastern Suburbs submarkets witnessed healthy leasing activity and stable vacancy rates. The projects that became operational in SBD North submarket witnessed moderate pre-commitments. The major transactions included Colgate- Palmolive (India) leasing space in Larsen & Toubro Business Park (L&T) at Powai and Sarasin-Alpen renting space in Indiabulls Finance Centre at Lower Parel. With moderate pre-commitments, Towers A and B of the Hiranandani Business Park, along with Lighthall and Hubtown Viva in SBD North submarket became operational in the. Rents remained unchanged as the renegotiating terms kept the pressure on the existing rentals, with the exception of few precincts in SBD Central submarket. Capital values remained stable, except for a marginal growth in Navi Mumbai submarket. The of February witnessed improved demand for high-street retail compared with the retail malls in Mumbai. The overall vacancy rate declined because of increased occupancy in select quality malls. Major transactions in February included Thomas Pink leasing space in Palladium at High Street Phoenix in Lower Parel and Hamleys renting space at Market City Kurla. There were no new completions during this. Rents in high streets and retail malls remained stable. Capital values also remained stable over the city. Residential units continued to witness moderate sales activity in February. New launches included Emerald Isle by L&T Realty at Powai, Fuego by Rubberwala Group at Mumbai Central and Aurum by Kabra and Associates at Goregaon. Select locations such as Andheri and Ghatkopar witnessed incremental increase in rentals whilst overall, Mumbai saw stable rents. per Lower Parel ,000 23,000 BKC ,000 35,000 Andheri ,000 15,000 Goregaon-Malad ,000 10,000 Wagle Estate ,000 6,000 Thane-Belapur Road ,100 6,000 Retail Rents (mall space) Capital Value per Lower Parel ,000 32,000 Malad ,000 20,000 Ghatkopar ,000 18,000 Mulund ,000 16,000 Thane ,000 14,000 Navi Mumbai ,000 12,000 INR per for a 1,000 sq ft 2BHK apartment Lower Parel 87,000 95,000 23,500 35,000 Wadala 40,000 55,000 14,500 19,000 Andheri 35,000 55,000 11,000 21,000 Ghatkopar 35,000 52,000 9,500 14,000 Ghodbunder Road 12,000 20,000 5,500 9,000 Kharghar 12,000 20,000 4,800 8,000 >> Maharashtra and the central government have finally cleared all hurdles in the way of the Churchgate-Virar elevated rail corridor project for Mumbai City, according to the Chief Minister (CM) of Maharashtra. Whilst the project will be implemented by the Railways, the Maharashtra government will acquire land, undertake relief and rehabilitation and work out the modalities for commercial exploitation of land to recover the cost of construction.

9 Pune Pune continued to witness healthy leasing activity during February. IT/ITeS firms accounted for most of the gross leasing volume in the city and dominated the transactions. The eastern part of the city became active, with most of the major transactions taking place in the area. The prominent transactions during the included AXA leasing space in Marvel Edge at Viman Nagar, TCS renting space in Commerzone at Yerwada and Allianz taking space in Eon Free Zone at Kharadi. No fresh supply of office space came on stream. Rents and capital values remained stable over the. Leasing activity in malls of Pune remained sluggish in February. Pune s organised retail stock remained unchanged with no new completions recorded. However, Season's mall, located in Hadapsar, is likely to hit the market in the next 3 5 s. Rents and capital values remained stable across all submarkets. In February, demand for residential units continued to remain stable. Major launches in this included Emirus, a high-end category project by Kundan Mehta Associates at Baner and Royal One, an upper-mid category project by NSG Group at Pimple Nilakh. Capital values remained stable across all submarkets. per Hinjewadi ,000 5,000 Hadapsar ,000 6,000 Bund Garden Road ,500 7,500 Viman Nagar ,000 7,000 S.B. Road ,500 7,500 Koregaon Park ,500 7,500 Retail Rents (High Streets) Capital Value per MG Road ,000 15,000 Bund Garden Road ,000 13,000 F.C. Road ,000 15,000 J.M. Road ,000 15,000 D.P. Road ,000 11,000 S.B. Road ,000 11,000 INR per for a 1,000 sq ft two- BHK apartment Wakad 10,000 12,000 3,800 4,800 Kharadi 11,000 15,000 4,500 5,300 Hadapsar 12,000 16,000 4,500 5,500 Hinjewadi 9,000 11,000 4,000 5,000 Undri 9,000 12,000 3,500 4,500 Pimpri-Chinchwad 8,000 12,000 3,500 4,500 >> Lavasa Corporation Ltd with Apollo Group and the hospital chain, have planned for a medicity project at Lavasa, the planned city that is being developed near Pune. The project cost has been estimated at approximately INR 3 4 billion. This joint venture development between Lavasa and Apollo is to be taken up at Mugaon, the second town that is being developed near Dasve (within Lavasa).

10 About Jones Lang LaSalle Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company s investment management business, is one of the world s largest and most diverse in real estate with $47 billion of assets under management. Jones Lang LaSalle has over 50 years of experience in Asia Pacific, with over 22,200 employees operating in 79 offices in 14 countries across the region. The firm was named the Best Property Consultancy in Asia Pacific at The Asia Pacific Property Awards 2012 in association with Bloomberg Television. For further information, please visit our website, About Jones Lang LaSalle India Jones Lang LaSalle is India s premier and largest professional services firm specializing in real estate. With an extensive geographic footprint across eleven cities (Ahmedabad, Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 5400, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, analytics, consultancy, transactions, project and development services, integrated facility management, property and asset management, sustainability, Industrial, capital markets, residential, hotels, health care, senior living, education and retail advisory. For further information, please visit For more information about our research Ashutosh Limaye Trivita Roy Head, Research and REIS Assistant Vice President, Research ashutosh.limaye@ap.jll.com trivita.roy@ap.jll.com About Bajaj Finserv Lending Bajaj Finserv Lending is one of the most diversified NBFCs in the Indian market catering to more than 5 million customers across the country. Headquartered in Pune, the company s product offering includes Consumer Durable Loans, Personal Loans, Loan against Property, Small Business Loans, Home loans, Credit Cards, Two-wheeler and Three-wheeler Loans, Construction Equipment Loans, Loan against Securities and the recently introduced Lifestyle Finance. Bajaj Finserv Lending prides itself for holding the highest credit rating of FAAA/Stable for any NBFC in the country today. To know more please visit or send an to pss@bajajfinserv.in Research Dynamics 2013 Pulse reports from Jones Lang LaSalle are frequent updates on real estatemarket dynamics. COPYRIGHT JONES LANG LASALLE IP, INC All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.