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India Market Watch - Office – H1 2021 India Market Watch - Office – H1 2021 Chart 1: GDP Growth (annual % change) 10 8 6 4 2 0 -2 -4 -6 -8 -10 2018 2019 2020 2021 2022 2023 World United States China Euro Area Japan India* Source IMF World Economic Outlook * The statistics for India are for Financial Year, while for the rest of the countries, its for Calender Year. Chart 2: COVID impact on Sectoral GDP (%) INDIAN 3.5 3.0 4.5 3.1 6.9 6.5 14.5 6.7 5.4 ECONOMY 2021 1.7 -1.5 -2.3 -5.0 UNION BUDGET 2021-22 & -7.2 -7.9 -9.1 POLICY This section contains a narration of the OUT OF RECESSION, The central government’s annual budget, presented Monetary Policy & RBI -16.1 socio-economic scenario of India during January to June 2021 period. It has a direct BUT… before the second wave, had six key elements The Monetary Policy Committee (MPC) of the impacting real estate, as shown in the Annexure. Reserve Bank of India contributed by keeping bearing on all businesses and hence on real India witnessed a protracted wave of pandemic in Notable among these was the PLI scheme of the benchmark lending rate constant at 4% estate. 2020, which peaked on 17th September. A technical approximately INR 2 lakh crores, which aims to during this period. The RBI also approved a recession occurred, as two consecutive quarters significantly boost manufacturing and allied transfer of INR 99,122 crores as surplus to the A systematic, sequential and detailed reporting reported negative GDP growth. However, the new -36.0 sectors. Further, there was push for affordable government. on all events during this period is presented in year started with hope, as vaccination was rolled out 12 unique #SavillsRoundUp, which we publish in India on 16th January 2021, beginning with housing, through focus on divestments, stressed COVID Specific Support on fortnightly basis. frontline services personnel. Soon, the country was asset resolution and tax holiday extensions. While As measures for COVID specific support, the -48.1 out of recession with a small but noteworthy 0.4% these announcements were made before the second -49.5 government announced 100% guarantee cover Please refer to the below link and follow GDP growth for the Oct-Dec 2020 quarter (Q3 of FY wave, some others on policy and fiscal fronts came for loans of up to INR 2 crores for hospitals and Agriculture Manufacturing Construction Trade,Hotels Financial, Real #SavillsRoundUp on our social media handles 2020-21). It was followed by 1.6% growth in Q4 of later. nursing homes, for setting up oxygen Estate to know about the events chronologically and FY 2020-21. This created a belief that India had In a virtual follow-up of the three Atma Nirbhar generation plants. Also, COVID treatment in real time. overcome the virus through a single wave, whereas Bharat schemes of 2020, the Finance Minister Apr-Jun 20 Jul-Sep 20 Oct-Dec 20 Jan-Mar 21 items have been exempted from IGST till most large economies around the world had suffered announced a package scheme of INR 6.29 lakh August 2021. two or more waves. In early March, vaccination was crores, including help for the beleaguered travel and Source MoSPI, Government of India opened to common public, amid rising confidence. allied sectors. These are among those key sectors REST OF 2021 In a strong reversal though, by the end of March, a which continue in the negative growth zone Contrary to the upbeat sentiment in the early second wave began and rose to enormous (chart-2). weeks of 2021, the turn of events in March and proportions in a matter of weeks. Lockdowns returned as India’s daily infection rate peaked at Another key event of the period was the central the rest of H1 has created an atmosphere of uncertainty. A third wave of the pandemic has India’s GST collections remained at cabinet’s approval to Model Tenancy Act. It is a 4.14 lakh in the first week of May. This was almost watershed development which paves the way for neither been ruled out nor clearly projected at this stage. Various international and domestic over INR 1 lakh crore for 8 consecutive 4.25 times the single-day peak of the first wave. rental housing creation in India. Hopefully, it will Nevertheless, it recorded a steady decline from also create a suitable platform for private sector agencies have repeatedly changed India’s months. participation. It is important to look at this in growth forecast during this period. Towards there, with estimates of complete control in July. conjunction with the announcement of ARHC the close of H1, Moody’s and S&P estimated Vaccination continued, despite numerous Guidelines of July 2020. the growth to be approximately 9.6% and 9.5% roadblocks during this time, as India overtook the US by administering 32.36 crore doses on 28th June. SEBI announced a change in application value for respectively for FY 2022. India started with two vaccines, viz., Anxiety regarding a third wave later this year, hangs heavily on the horizon though. REITs and InvITs to INR 10,000 and INR 15,000 The second wave appears to be receding at the end of H1. Businesses are expected to recover Covishield & Covaxin and added two respectively, from INR 50,000 and INR 1 lakh Click here to read earlier. Also, the trading lot size was reduced to one. on the strength of advancing vaccinations in the months ahead. more, Sputnik-V and Moderna during This move has immense potential to attract retail Note: This section contains figures in Indian system of investors and open more avenues for investment. H1 2021. A fifth one is also expected lakhs and crores (refer Appendix for international conversions). 1 USD = Approx. 74.28 INR on June-30, 2021 during the year. savills.in 2 3
India Market Watch - Office – H1 2021 India Market Watch - Office – H1 2021 COMPLETIONS & Supply Addition: H1 2021 vs H1 2020 INDIA OFFICE VACANCY HIGHLIGHTS % Change YoY H1 2020 H1 2021 New completions increased marginally by 4% 7.0 60% YOY to about 18.0 mn sq. ft. Bengaluru has MARKET UPDATE recorded the highest infusion of new supply 6.0 40% constituting a 36% share, followed by 20% Hyderabad and Delhi-NCR at 28% and 22% 5.0 shares, respectively. 0% 4.0 % change YOY Interestingly most cities namely Bengaluru, -20% Hyderabad, Mumbai and Pune saw an mn sq.ft. 3.0 increase in new completions compared to the -40% same period last year. This is on account of 2.0 deferred supply getting completed, since -60% construction activities were not hampered in 1.0 Scan to Download -80% WhatsApp version partial lockdowns imposed by the State governments. 0.0 -100% Bengaluru Chennai Hyderabad Mumbai Pune Delhi NCR Overall India vacancy levels increased to 16.2% at the end of June, as supply addition exceeded the pace of leasing activity. Also, some occupiers optimised their real estate Source Savills India Research portfolios to an efficient space, thereby The year began with optimism and reimagined KEY STATISTICS: H1 2021 spiking the vacancy rates in select markets. It workspaces, as lessons from the first wave of the Deal Distribution: Share in Total Leasing Only two cities, namely Chennai and should be noted that this can be a temporary pandemic were getting implemented and businesses New Supply YOY change (in sq. ft.) Delhi-NCR, saw reductions in new phenomena in markets which are in a state of started to stabilize. But the unanticipated second wave hit hard in the second quarter, leading to a temporary Total India Stock 18.0 4% flux. completions compared to H1 2020. 621.8 Up to 25,000 pause in expansion plans and dragging the leasing mn sq. ft. activity to a six-year low. 27.7% Rental trends mn sq. ft. Gross Absorption YOY change Vacancy Levels 10.9 The second quarter saw 65% QOQ decline in leasing -38% 25,001-50,000 Most markets have seen a decline in average 50,001-99,999 H2 2020 H1 2021 activity, owing to lockdowns and the severity of 25.0% 12.4% 16.7% rental values compared to last year, to the tune infection. In the next few sections, we highlight the of about 6% YOY. A few micro markets have mn sq. ft. performance of the office sector during the first half of seen a sharper decline as landlords exhibited 20.0% the year 2021. flexibility to attract new clients, while prime locations with limited availabilities saw stable 15.0% Gross Absorption in Major Cities H1 2020 H1 2021 YOY Decline % 100,000 or more rents. NCR submarkets saw softening of rents ABSORPTION HIGHLIGHTS: 43.2% among other markets as depicted in the table 10.9 mn sq. ft. 6 0% below. 10.0% -16% -48% -48% -39% -63% -38% -10% At 10.9 mn sq. ft. gross office space absorption across India’s 5 -20% six major cities1 registered a 38% YOY decline as occupiers 4.9 Demand Split by Sectors 5.0% -30% 4 YoY decline % paused expansions and resumed portfolio optimisation 4.1 -40% mn sq.ft. plans. The pecking order was not a surprise as Bengaluru 3 -50% Select pockets kept overall rents 0.0% 3.2 IT BFSI continued to lead with 4.1 mn sq. ft. of leasing activity under pressure, thereby creating Pune Mumbai Chennai Delhi NCR Hyderabad Bengaluru 2.7 -60% 51% 12% representing 37% share in H1 2021. It also saw the lowest 2 2.3 2.1 2.0 2.4 -70% conditions favourable to occupiers. decline of 16% YOY, compared to the other five cities. -80% 1 1.4 1.4 1.1 0.9 -90% Following Bengaluru, Delhi-NCR witnessed leasing activity Engineering & Flexible Source Savills India Research of 2.0 mn sq. ft. in H1 2021, recording a 38% YOY decline. 0 -100% Manufacturing Workspace 10% 8% Bengaluru Chennai Delhi-NCR Hyderabad Mumbai Pune While Mumbai and Hyderabad shared third place with approximately 1.4 mn sq. ft. absorption, the annual decline in Rental Range in H1 2021 leasing was sharper for Hyderabad at 48% compared to 39% in INR per sq. ft. pm Low High Average YOY change* for Mumbai. Pharma & Consulting The top cities of Bengaluru, Delhi-NCR and Mumbai Large deals continue despite the Technology occupiers continue to Healthcare 4% Bengaluru 40 156 0% cautious approach drive demand and large leases 7% constituted around 69% of the total leasing activity in H1 Chennai 36 110 -1% 2021. Pune recorded approximately 0.9 mn sq. ft. leasing, Sizeable consolidations and expansions The technology sector continued to be the have contributed to the share of large deals primary demand driver for office real estate Hyderabad 35 70 -3% which was the lowest in volume as well as the largest decline among these six cities. Chennai just managed to breach 1.0 (deal size more than 100,000 sq. ft.) in H1 in India with a 51% share, higher than last Others Mumbai 45 400 -5% mn sq. ft., recording an annual decline of about 48%. 2021, accounting for about 43.2% of the year’s 48% share during the same period. 8% overall pie. Bengaluru witnessed the highest The Banking, Financial Services and NCR-Delhi 95 270 -6% share of large deals at 51%, followed by Insurance (BFSI) occupiers’ share declined Technology occupiers continue Mumbai & Hyderabad tie at 3 spot withrd NCR-Gurugram 45 140 -3% Delhi-NCR and Hyderabad. to 12.3% compared to 15% in H1 2020 as they to lead followed by BFSI. similar levels of absorption but the expanded cautiously. While Engineering Interestingly, small-sized occupiers While the share of tech companies NCR-Noida 50 80 -9% annual decline is steeper for Hyderabad. (
India Market Watch - Office – H1 2021 India Market Watch - Office – H1 2021 Grade – A Office Stock & Vacancy 12.7% 10.5% PUNE OFFICE 4.2% PUNE 58.5 MARKET UPDATE MARKET 54.6 54.9 OUTLOOK 2019 2020 Stock in mn sq. ft. Vacancy in % 2021F Source Savills India Research DEMAND Note: The stock basket for 2020 has been modified to reflect Grade A buildings. Scan to Download On the back of successful vaccine administration WhatsApp version programme, we expect office market to show signs of Office Absorption (mn sq. ft.) in Pune recovery during the second half of 2021. Driven by pre-commitments of 1.5 mn sq. ft. that are likely to get absorbed during H2 2021, we expect Grade A gross 6.8 PUNE’S KEY absorption to triple from H1 2021. 2021 is expected to conclude with an overall demand quantum equivalent to 3.6 3.6 HIGHLIGHTS that recorded in 2020. Flexible workspace operators expanding SECTORS 2019 2020 2021F significantly: After a year of remote-working since the pandemic began, the trend of ‘Work We expect continued interest from Technology occupiers Source Savills India Research From Home’ and ‘Work From Anywhere’ has as well as flexible workspace operators and Engineering & Manufacturing occupiers to drive office leasing demand gained significance. The results of a survey during H2 2021. Suburban micro markets of East and Average Rents (INR/sq. ft./month) conducted by Savills India amongst occupiers H1 2020 West as well as the CBD are likely to attract occupier in Pune in March 2021 suggested that almost attention due to expected infusion of quality supply H2 2020 120 half (47%) of them foresee more than 40% offering large contiguous spaces. H1 2021 of their workforce to be working from a non- 100 office location over the next 12-24 months. RENT & VACANCY Further, occupiers are also looking at workplace 80 Grade A quoted rental values are likely to remain stable options that offer them the flexibility to expand across all micro markets in 2021. Amidst significant or contract. Hence, to tap the opportunity, supply infusion and recovery in leasing activity, we 60 flexible workspace operators implemented their expect the vacancy rate to hover around 11%-13% at the expansion plans garnering a considerable 18% 40 end of December 2021. share in the overall Grade A leasing in the city 20 during H1 2021. For reference, this was 7x times SUPPLY the absorption recorded during H1 2020, when New supply of 2.9 mn sq. ft. is scheduled to be completed 0 the segment accounted for 1% share in overall during H2 2021. This planned supply will likely be IT CBD SBD East SBD West PBD East PBD West leasing. developments concentrated in the micro markets of SBD Source Savills India Research Significant pre-commitments: In the absence LEASING AND is deferred to later quarters due to slow West (77%) and SBD East (23%). construction as a result of the pandemic- of limited quality supply in completed buildings, COMPLETIONS induced lockdown, developers are also occupiers requiring large spaces pre-committed spaces to meet their expansion needs. During Absorption: Pune witnessed Grade A adopting a ‘wait and watch’ approach and are H1 2021, the city witnessed 1.1 mn sq. ft. of pre- gross absorption of 0.9 mn sq.ft. during awaiting occupiers’ commitments to enable MAJOR TRANSACTIONS H1 2021 commitments driven by Technology occupiers H1 2021, registering a decline of 63% over expedition of construction of the buildings H1 2020. Majority (56%) of Grade A gross in advanced stages of completion. Transacted Area* and flexible workspace operators mainly in the Tenant Micro market Building (sq. ft.) micro markets of CBD and SBD West. absorption was concentrated in the micro market of SBD East, followed by 23% in the VACANCY RATE CBD, 20% in SBD West and the remaining Amidst muted gross absorption and supply ADP SBD East Trion IT Park 250,000 KEY STATISTICS: H1 2021 in PBD West. infusion, overall vacancy levels in the city rose to 11.8% at the end of June 2021. The Synechron SBD East EON Phase II 58,000 New Supply YOY change* Sector Split: During H1 2021, technology increase in vacancy can be attributed to 0.7 -- occupiers continued to dominate the Workday CBD Commerzone 52,000 considerable relocations by occupiers as well leasing activity garnering a 68% share in as surrender of spaces amidst tough market Red Bricks CBD Commerzone 52,000 mn sq. ft. Grade A gross absorption, followed by conditions. flexible workspace operators accounting Telstra SBD West Quadron Business Park 50,900 Gross Absorption YOY change for an 18% share. RENTS 0.9 -63% Supply: Pune witnessed Grade A supply infusion of 0.7 mn sq. ft. during H1 2021. City-wide Grade A quoted rental values remained stable at INR 74/sq. ft./month PUNE MICRO MARKETS CBD - Laxmi Road, Camp, Bund Garden, Boat Club, Koregaon Park, Dhole Patil Road, Pune Station, Shivaji Nagar, FC Road, JM Road, Wakdewadi, SB Road, Model Colony, Ganeshkhind Road, Kalyani Nagar, Yerwada mn sq. ft. All the new supply was concentrated at the end of June 2021. However, select SBD East - Kharadi, Mundhwa, Nagar Road, Viman Nagar, Hadapsar, Kondhwa SBD West - Aundh, Baner, Balewadi, Pashan, Kothrud, Karve Nagar, Khadki, Paud Road in the micro market of SBD West, with developers offered increased flexibility PBD East - Phursungi, Wagholi, Charoli, Solapur Road, Saswad Road, Katraj a 40:60 split between IT and non IT leading to lower effective rents to attract as PBD West - Hinjewadi, Wakad, Pimpri, Bhosari, Chinchwad, Bavdhan, Mulshi, Talawade, Tathawade, Nanded City, Pimple Saudagar *No noticeable Grade A supply infusion took place during H1 2020 developments. While partial supply well as retain tenants. *Approximate and indicative areas only savills.in 6 7
India Market Watch - Office – H1 2021 India Market Watch - Office – H1 2021 ANNEXURE: KEY BUDGETARY ANNOUNCEMENTS AND REAL ESTATE IMPLICATIONS PLI schemes Professionally managed Infra Push: 35% of INR 2 Tn Development Financial allocation increase 01 02 03 • Major step for making India a Institution; Debt route •P roposed building of 8,500 hub for manufacturing and for REITs kms of National Highways by exports March 2022 • Key sectors: Pharma, Auto, •B etter monetisation of real Textiles, Electronics, Telecom estate assets •A dditional 11,000 kms by and Food products March 2024 •E xpectation of greater • Pharma one of the favourites: participation by institutional Local advanced pharmaceutical investors ingredient manufacturers already received PLI approvals • Sector specific parks to be set up as well Sector Infra sector including Sector New RE development Sector Manufacturing & Impact Manufacturing, Logistics, Impact corridors Industrial & Impact Warehousing and Warehousing Logistics push Disinvestment of land Affordable housing Speeding up stressed and monetisation of focus and tax holiday asset resolution non core PSU assets extensions 04 05 06 •N ew bad loan bank to be set up • Model Tenancy Act approved •T ax holiday extension and •F aster revival or disposal of to create inclusive rental interest benefits on affordable stuck projects in RE sector housing market housing home loans • Stake sales of PSUs including •B oost investor confidence in banks and insurance recently launched ARHC • SPVs to monetise land owned scheme by PSUs • Crucial land availability for housing sector • Favourable for Model-1 of ARHC scheme Sector Affordable Sector Affordable Sector Residential & Urban Impact Housing Impact Housing Impact Development savills.in 8 9
India Market Watch - Office – H1 2021 APPENDIX Glossary incentivize private and public entities to develop such housing complexes Atma Nirbhar Bharat Scheme on their own available vacant land also. Atma Nirbhar Bharat schemes are COVID-19 specific relief packages (worth Production Linked Incentives (PLI) Scheme approximately INR 29.87 trillion) announced in 2020 by the Government of PLI Scheme aims to provide incentives to companies on incremental India, targeted at various sectors of the economy. sales from products manufactured in domestic units to boost domestic Model Tenancy Act, 2021 manufacturing. The scheme also aims to invite foreign companies to set Model Tenancy Act, 2021 aims to create an effective regulatory ecosystem shops in India. in India to govern landlord-tenant relationship benefiting the urban middle Integrated Goods & Service Tax (IGST) class, working professionals, students and floating population. Under GST, IGST is a tax levied on all Inter-State supplies of goods and/ Affordable Rental Housing Complexes (ARHCs) Scheme or services, governed by the IGST Act and tax will be shared between the It provides the guidelines for affordable rental accommodation targeted Central and State Government. at migrant workers & urban poor. Under the scheme, existing vacant Savills India provides services across office Savills Savills India government-funded housing complexes across major cities will be leasing, project management, capital markets, Savills plc is a global real estate services provider Savills India is a group company of Savills converted into ARHCs and offered to concessionaires for 25 years to rent valuations, research, consulting, industrial and listed on the London Stock Exchange. We have an Plc. and is a premier professional international out the units to urban poor and migrant workers. The government will logistics, and residential services. Starting in international network of more than 600 offices and property consulting firm. With full-service offices 39,000 associates throughout the Americas, the in Bengaluru, Mumbai, Delhi-NCR, Chennai, India in 2016, the company employs over 350 UK, continental Europe, Asia Pacific, Africa and Pune and Hyderabad, the firm serves Occupiers, professionals. Abbreviations & Acronyms IMF - International Monetary Fund the Middle East, offering a broad range of specialist Investors and Developers of Real Estate. BFSI - Banking, Financial Services and Insurance mn. - Million advisory, management and transactional services bn. - Billion MPC - Monetary Policy Committee to clients all over the world. GDP - Gross Domestic Product MoSPI - Ministry of Statistics & Programme Implementation InvITs - Infrastructure Investment Trust RBI - Reserve Bank of India INR - Indian Rupee REIT - Real Estate Investment Trust sq. ft. - Square Feet Research Central Management Regional Management INR per sq. ft. pm - INR per square foot per month Arvind Nandan Anurag Mathur Bhavin Thakker IT - Information Technology Managing Director Chief Executive Officer Managing Director - Mumbai Research & Consulting Savills India Head - Cross Border Tenant Advisory arvind.nandan@savills.in anurag.mathur@savills.in bthakker@savills.in Key Definitions Megha Maan Kaustuv Roy Sarita Hunt Director Managing Director Managing Director Research & Consulting Business Solutions Bengaluru Term Definition megha.maan@savills.in kaustuv.roy@savills.in sarita.hunt@savills.in Suryaneel Das Naveen Nandwani Shweta Sawhney • Includes all constructed / completed buildings listings Stock/Inventory Assistant General Manager Managing Director Managing Director • This includes existing buildings plus new completions Research & Consulting Commercial Advisory & Transactions Delhi-NCR suryaneel.das@savills.in naveen.nandwani@savills.in shweta.sawhney@savills.in • New office buildings that have received their certificates of occupancy within the period Diksha Gulati Praveen Apte Supply • Buildings that have their structure ready and have occupier/s operating out of it or fit-outs are being carried out Senior Manager Managing Director Research & Consulting Media Queries Pune • Sum of all leases including expansion, relocation and consolidations diksha.gulati@savills.in praveen.apte@savills.in Nitin Bahl Gross absorption/Gross Abhinav Pal Director Anup Vasanth • Does not include full-term renewals which are after the nine-year lease expiry Leasing/ Leasing activity Manager Marketing, Sales and Strategy Managing Director • Includes leasing of entire tower by an occupier within an IT park/development Research & Consulting nitin.bahl@savills.in Chennai abhinav.pal@savills.in anup.vasanth@savills.in Average Rental Values/ Sesha Sai • A fair estimation of asking rent and deal closure rent Rents Managing Director Hyderabad Vacancy • Total vacant space as a percentage of Inventory/Stock sesha.sai@savills.in Term International Definition Gurugram Mumbai Bengaluru 3-A, Second Floor, Building 9B 403, Tower B, Level 4, The Capital 15th Floor, SKAV SEETHALAKSHMI Crore • Ten Million (10,000,000) DLF Cyber City, Phase 3 Street 3, G Block, Bandra Kurla Complex Corporation No.21, Kasturba Road Sector 24, Gurugram 122002 Bandra East, Mumbai 400 051 Bengaluru 560001 Haryana, India Maharashtra, India Karnataka, India Lakh • One Hundred Thousand (100,000) Chennai Pune Hyderabad Savills, 5th Floor, North Wing WeWork Futura Office No. 02A114, WeWork Harmony Square, New No. 48 & 50 Magarpatta Road Krishe Emerald, Hitech City Praksam Street, T. Nagar Pune 411 028 Hyderabad 500081 Chennai 600017 Maharashtra, India Telangana, India Tamil Nadu, India savills.in 10 11
savills.in Savills, the international real estate advisor established in the UK since 1855 with a network of over 600 offices and associates globally. This document is prepared by Savills for information only. Whilst the information shared above has been shared in good faith and with due care with an endeavour to keep the information up to date and correct, no representations or warranties are made (express or implied) as to the accuracy, completeness, suitability or otherwise of the whole or any part of the deliverables. It does not constitute any offer or part of any contract for sale. This publication may not be reproduced in any form or in any manner, in part or as a whole without written permission of the publisher, Savills. © Savills India 2021.
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