Pune: Grade A Office
- IT SEZ spaces in Pune accounted for approximately 66% of the total absorption in 1H11
- Rentals remained stable despite strong absorption activity due to additions to office stock.
- Capital values registered a marginal increase in the CBD and SBD, compressing yields in these two micro-markets. Demand
Both absorption and leasing activity remained robust in Pune in 1H11. Net overall absorption was 2.3 million sq ft (213,591 sqm), with 1.5 million sq ft leased during 2Q11. The prime micro markets recorded absorption of about 0.48 million sq ft (44,703 sqm) in 2Q11. Over the past one year, we have seen occupier’s focus shift towards SEZ units, which was clearly visible as IT SEZs accounted for approximately 66%, i.e. 1.51 million sq ft (140,890 sqm), of the total space absorbed in 1H11.
The most active regions in terms of absorption and leasing activity were Hinjewadi in the Suburban micro-market, and Yerwada, Hadapsar and Kharadi in the SBD. Hinjewadi alone accounted for approximately 50%, i.e. 1.12 million sq ft, of the total space absorbed thus far in 2011 as the majority of the active and under-construction IT SEZs are in this region.
Some of the transactions in 2Q11 included Nihilent taking up 100,000 sq ft (9,290 sqm)in Commerzone Building 1 in Yerwada, WNS leasing 44,174 sq ft (4,103 sqm) in Magarpatta Cybercity Tower 8 and Kenesys leasing 25,000 sq ft 2,322 sqm) in the Business Plaza in Koregaon Park.
Overall vacancy rates remained stable in 1H11 and stood at 15.7% and 15.8% in 1Q11 and 2Q11 respectively.
Supply
Five projects completed in 2Q11, adding 1.37 million sq ft of leasable area to the total available. The total leasable area completed in 1H11 amounted to 3 million sq ft in 11 projects. Most completions were recorded in the SBD and suburbs were amongst the IT SEZs units as a result of the rising demand in this asset class. At end-2Q11, the total stock of office space in Pune was 29.6 million sq ft.
Asset Performance
Despite the strong absorption levels witnessed over the past year, the ongoing addition of new office stock kept rental rates intact. Rental rates in the CBD were in the range of Rs.45-65 per sq ft per month in 2Q11.
The past year saw a considerable number of outright transactions, both by end-users and investors, clearly suggesting increased confidence among buyers. This trend continued in 1H11. As a result, capital values appreciated in certain micro-markets. Capital values in both the CBD and SBD registered a q-o-q increase of 3.0-3.5% to settle at Rs.6,000 and Rs.3,300 per sq ft, respectively. This resulted in compressed yields in these two markets, at 11.2% and 10.8%, respectively.
12-Month Outlook
The sustained increase in absorption levels witnessed over the past year indicates a strengthening demand that is expected to continue over the coming quarters. Demand for SEZ units is also expected to remain intact, with the SBD and the suburbs predicted to contribute significantly to absorption thanks to their huge share of operational and under-construction stock.
Although a sizable supply in the pipeline in the Suburban micro-market will keep rental rates intact, rates in certain pockets of the SBD, such as Yerwada, Magarpatta and Nagar Road are expected to rise gradually due to the rapid exhaustion of Grade A properties in these areas in line with active demand for office space. Similarly, capital values in the CBD and SBD are expected to increase by end-2011 as prevailing values for Grade A properties are already hinting at an increase.
Pune: Prime Retail
- Absorption in 1H11 was the highest since the advent of organised retail market in Pune.
- Lack of readily available quality mall space in the Prime City micro-market has pushed rentals up.
- Yields remained stable across the micro-markets, indicating a much improved business sentiment.
Demand
Pune’s Secondary micro-market finally got a kick start after a gap of almost three years with Pulse Mall, K Raheja Corp’s Inorbit Mall and Phoenix Market City commencing operation in 2Q11. All these malls are located on Nagar Road. Both Inorbit Mall and Phoenix Market City commenced operation with high occupancy levels of 70% and 80%, respectively, while the rate in Pulse Mall was a relatively lower level at 40%. As a result of good pre-commitments in Inorbit Mall and Phoenix Market City, Pune’s retail market saw net absorption of 1.28 million sq ft (119,028 sqm) in 1H11, the highest since the advent of organised retail market in the city. Overall vacancy rates for 1H11 were 22.8%.
Inorbit Mall, home to two department stores (Lifestyle and Shopper’s Stop) offers shoppers the flexibility to choose from a wide array of fashion brands, while the Spar hypermart is proving to be a one-stop shop for daily household needs. With the opening of Phoenix Market City, a host of international brands, such as Zara, Blue O, Spar and Diesel, will offer shoppers a totally new line of fashion and entertainment options.
Supply
Pune’s retail market witnessed completion of the long-awaited Inorbit Mall, Pulse Mall and Phoenix Market City. With these three completions totaling up to a leasable area of 1.7 million sq ft (157,935 sqm), Pune’s total stock of organised retail space was 3.25 million sq ft (302,121 sqm) at end-1H11.
Asset Performance
At end-2Q11, rental rates in malls in the Prime City micro-market registered a q-o-q increase of 2.7% and a y-o-y increase of 9.5% to settle in the range of Rs.100-140 per sq ft per month. These increases can be attributed to the negligible vacancy in both major malls in the Prime City micro-market (Magnum Mall and Jewel Square) and also the pre-leasing recorded in the malls under construction also remained strong. Koregaon Park Plaza which is under construction witnessed relatively strong pre-leasing in the micro- market.
Capital values in the Prime City micro-market appreciated in the same range as rental values, settling at approximately around Rs.11,300 per sq ft by end-2Q11.
12-Month Outlook
The Secondary micro-market is set to drive retail demand in the city as quality developments are lined up for completion over the next 2-3 years. The malls under construction in Secondary micro market account for 84%, or approximately 5.75 million sq ft, of the total 6.7 million sq ft (629,419 sqm) of retail space expected to enter the market as a whole, between 2011 and 2013. Net absorption in the micro-market is expected to be 2.2 million sq ft (205,000 sqm) of the total 2.6 million sq ft (245,000 sqm) expected by end-2011.
Significantly low vacancy rates in existing quality malls (Magnum Mall and Jewel Square) and limited new quality developments, such as Koregaon Park Plaza, are expected to drive rental rates in the Prime City micro-market up by end-2011. Rental values are expected to settle at Rs.119 per sq ft per month by end-2011.
