Micro Markets – The new growth engine for 2008

Micro Markets – The new growth engine for 2008
According to latest 2Q 2008 Asia Pacific Property Digest research from Jones Lang LaSalle

India, 20 August 2008 - The office property markets have continued to post growth over the past few years. However, the last few quarters, have witnessed a polarization of office markets in terms of growth in demand across the country, reports Jones Lang LaSalle Meghraj in its second quarter 2008 Asia Pacific Property Digest (APPD), a comprehensive quarterly report providing market update, significant trends in office markets in India.

The office markets, across six Indian cities including Mumbai, Delhi NCR, Bangalore, Chennai, Hyderabad and Kolkata, can categorized into three broad segments

(1) first segment includes markets which are likely to be “susceptible” in terms of retarded demand growth for the remaining half year of 2008.
(2) second segment includes micro markets which are “strong” in terms of maintaining demand growth for the next two quarters, and
(3) third set includes micro markets which have “high potential” in terms of improving demand growth for the rest of the year.

Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj says, “It is interesting to note that the “high potential” office micro markets, anticipated to clock increased growth in demand, would do so essentially on the back of affordable product values, improving infrastructure and enhanced product being delivered. It is expected that over the next 8-10 quarters, such markets could witness strong pre-leasing commitments by occupiers despite robust supply pipelines, which are in place.”

Source: Jones Lang LaSalle Meghraj 2Q 2008 APPD; CBD-Central Business District; SBD-Secondary Business District

In case of the susceptible markets, demand from occupiers in the IT/ITES segment, could be rationalized on the back of economic slowdown in the US. This coupled with the strong supply pipeline in many of these markets could lead to a potential consolidation in the respective markets, leading to relatively higher vacancies, although, this may not immediately manifest itself in any marked rental consolidation in such markets.

If the global economic slowdown sustains, we foresee the vacancies to rise in these micro-markets due to strong supply volumes. This might put some pressure on the rental values next year. Rental values are consolidating across all vulnerable markets, however, no major rental fall is expected in these markets this year.

Moreover, it is increasingly becoming evident over the last two quarters that micro markets which are dependent on demand from IT/ ITES occupiers, are likely to be more sensitive to the occupation cost variations as compared to those micro markets which derive demand from non IT/ITES occupiers.

This is evident from the fact that many of the CBD areas in cities such as Delhi, Mumbai, Chennai, Hyderabad, Bangalore and Kolkata continue to enjoy captive demand from corporate occupiers mainly from BFSI, Consulting, and other service industries. The consistency in most of these office markets is also attributable in part to the relatively limited growth in the supply pipeline over the last few years.

Supply Trends
In terms of new office supply completions in the first half year 2008 as compared to same period in the previous year (2007), it is interesting to note that the cities (including all micro markets) that have clocked the highest positive growth rate in terms of delivered supply on a year-on-year are Kolkata, Chennai, Mumbai and Delhi. In fact, Bangalore and Hyderabad are two cities which have actually posted negative growth in terms of stock completion in first half of 2008 vis-a-vis same period 2007.

Source: Jones Lang LaSalle Meghraj 2Q08 APPD

Outlook
A remarkable insight to note is that Hyderabad, Delhi, Mumbai, Chennai and Bangalore have more than half of the total expected office stock completions planned to be delivered in the remaining half of 2008. Whereas, in Kolkata the situation is just reverse, where about a third of the total stock completions are due to be delivered in the remaining half of 2008.

On the demand front, the second half of 2008 is expected to witness high pre-leasing activity in most IT SEZs and, IT parks developed by blue chip developers. While the slowdown in the IT/ITES sector is a known story, the slowdown has been only in terms of a deceleration in the estimated growth rate to 21-24% for 2008-09 vis-a-vis the recorded 28.2% growth in FY 2008. Further demand from emerging industries like pharma, biotech, semiconductor, R&D operations and logistics will top this IT/ITES demand. Thus, taking cognizance of the supply-demand scenario, the next two years will witness strengthening of the real estate office market fundamentals in terms of market behaviour, rationalisation of demand-supply, and increased consolidation.

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a 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 2007 global revenue of USD2.7 billion, Jones Lang LaSalle has approximately 180 offices worldwide and operates in more than 700 cities in 60 countries. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.2 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 more than USD54 billion of assets under management. For further information, please visit our website, http://www.joneslanglasalle.com/.

Jones Lang LaSalle has over 50 years of experience in Asia Pacific, with over 16,000 employees operating in more than 70 offices in 13 countries across the region.

About Jones Lang LaSalle Meghraj

Jones Lang LaSalle Meghraj, the Indian operations of Jones Lang LaSalle, is the premiere and largest real estate professional services firm in India. With an extensive geographic footprint across ten cities (Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 3300, the firm provides investors, developers, local corporate and multinational companies with a comprehensive range of services including research, consultancy, transactions, project and development services, integrated facility management, property management, capital markets, residential, hotels and retail advisory. For further information, please visit www.jllm.co.in

Current Market Scenario by Anuj Puri

Anuj Puri, Chairman & Country Head, Jones Lang Lasalle Meghraj:

There has been a moderate-to-mid slowdown overall. Retail investments have shown a sharper decline than institutional investments.

Financial institutions are finding it attractive to enter projects at reasonable valuations in the current market situation. Retail investors in residential property probably need to wait and watch till after Diwali to get good value.

Mumbai, Delhi NCR and Pune would have been the best investment options three years ago. The returns were about 30% p.a. Despite the current slowdown, returns are likely to be between 20–30% if an investor holds on for the long term. In the short-to-medium term, they will be considerably lower.

Provided that one does not pay excessively for a property, and further provided that one holds it for a sufficiently long period, thereafter exiting at the right time, returns will be the same. Only the time-frame for these returns has changed – not the potential. It is now a matter of holding power and investor maturity.

Short-term investment would yield much lower returns. To illustrate:

Delhi / NCR- Residential: 7-8%, Commercial: 11-13%
Mumbai - Residential: 7-9%, Commercial: 11-13%
Bangalore - Residential: 6-8%, Commercial: 11.5-13.5%
Kolkata - Residential: 6-8%, Commercial: 11-12%
Chennai - Residential: 6-8%, Commercial: 11.5-13.5%
Chandigarh (incl. Mohali, Panchkula, Zirakpur) - Residential: 6-8%, Commercial: 12-14%
Indore - Residential: 7-8%, Commercial: 12-14%
Cochin - Residential: 5-7%, Commercial: 12-13%

These figures are a reflection of rising property prices and increased risk. Expected returns are higher in riskier markets.

Contributed By : Arun Chitnis

iProperty Group Enters India By Acquiring RealAcres.com; To Invest Almost $500,000 In Working Capital

The IPGA Group (iProperty), a company listed on the Australian Stock Exchange (ASX), has made its debut in the Indian market by acquiring Horizon Infoventures, which owns the Indian property portal RealAcres. The acquisition has been made through its wholly owned subsidiary iProperty Group Asia Pte Ltd. iProperty will introduce print, exhibition and online luxury products to the Indian market.

Further details include that iProperty will invest A$ 0.53 Million (around $470,000) in 4 tranches for 43 percent shares, and swap shares for 17 percent. They will have the option to acquire the remaining 40 percent based on future earnings. The management of RealAcres have a lock-in for a minimum of 3 years.

The deal appears on the same lines as to iProperty's July 2008 acquisition of VRHouse.com.tw in Taiwan. RealAcres claims that it has around 211,000 property listings. The company is based in Mumbai, and focuses primarily on the Western India market. Considered that many times real estate agents are offered free listings to get them to sign up for property sites, so the number of listings may not be an indication of paid listings, hence revenue figures might vary.

In the online property space, if one looks at the transaction or listings based models, then the most prominent players are MagicBricks (Times Business), 99Acres (Info Edge), Indiaproperty (Consim) and Makaan.com while in the business networking space, its only propertymixer.com. HT Media and Manorama Online are also planning real estate portals.

Contributed By : Dushiyant

UK-India Cross Border Investment Set to Grow to £10-15 Billion by 2018: Jones Lang LaSalle

UK-India Cross Border Investment Set to Grow to £10-15 Billion by 2018: Jones Lang LaSalle
Leading UK Developer, The Berkeley Group, Launches London Developments in Delhi and Mumbai

Mumbai, India, 7 August 2008 – Spurred by India’s rapid economic acceleration and continued growth in the medium term, India has seen an unprecedented rise in individual wealth and in the emergence of High Net Worth Individuals (HNWIs). As a consequence, an increasing outward trend in cross border residential investment by Indians in international markets like the UK is increasingly gaining prominence. According to the report, ‘UK-India Cross-border Residential Investment’ released by Jones Lang LaSalle today; Indians could potentially own 20,000 - 30,000 UK residential properties over a 10 year horizon.

A favourable investment environment makes the UK a preferred residential investment market for India’s rising HNWIs and burgeoning middle class population. With no restrictions on Indians investing in UK residential property and strong house price growth, the market will continue to see the current investment size of £0.6 – £1.2 million grow exponentially over the next 10 years, according to the report.

UK residential property headlines have been grabbed by the purchases of Ultra HNWIs like Lakshmi Mittal who have bought a number of homes in the past couple of years. However, there has also been a growing tide of lower-profile purchases by Indians. The number of such Indians with the propensity to invest in the UK residential market is likely to increase to 583 million by 2025 coupled with another 400,000 HNWIs (four times the current base today) by 2017.
In response to this growing appetite for UK property, The Berkeley Group, one of the most respected names in the UK property market, will be launching two of its most exciting developments at exhibitions in Mumbai and Delhi. Two of the principal divisions of The Berkeley Group, St George and St Edward Homes, will be showcasing Aquarius House in Vauxhall, South London, and Stanmore Place in Stanmore, North London in India in August.

Of its international clients, Berkeley has found particularly success among Asian investors. Paul Vallone, Managing Director, Berkeley Homes (Urban Living) Ltd. said “As the Asian middle class grows, more of them are looking abroad for sound investment opportunities. Parents choose an apartment that they can pass on to their children when they go to university, while business travellers will often buy a ‘lock up and leave’ flat that they can use during regular trips to London. Indian investors are some of the most discerning buyers in the world and we believe that, because all of our projects are built in convenient and sought-after locations with the highest level of specification and security, they are ideally suited to such purchasers.”

The Berkeley Group has recently announced that two of its principal divisions, St George and St Edward Homes, will be travelling to India to launch two of its most exciting developments to date: Aquarius House in Vauxhall, South London, and Stanmore Place in Stanmore, North London. Using the specialised local knowledge of Homebay Residential – the residential arm of Jones Lang LaSalle Meghraj, these developments will be exhibited in both Mumbai and Delhi.

‘UK-India Cross-border Residential Investment’ continues to add that the combined growth in the Indian economy and the level of wealth creation to date, it is clear that the potential spend on UK residential property investment can be huge over the next ten years. It further says, “Specific predictions are difficult but broad assumptions give one some idea of the potential scale of investment. Currently, the proportion of any individual’s wealth invested in property is typically 20% of all assets. We can also make the assumption that the approximate proportion of wealth invested in the UK rather than elsewhere is 10%. By combining these numbers the following seem quite plausible over the next 10 years.”

Raminder Grover, Managing Director, Homebay Residential (a subsidiary of Jones Lang LaSalle Meghraj), said “UK-based developers are increasingly interested in attracting investors from India. They are targeting not only the high net individuals but also the upper middle segment. The UK represents a very amenable market for Indian investors - the British Pound is far more stable than the rupee, there is far greater transparency in the UK real estate market, UK tenants sign long leases of up to 25 years and their long-term income generation capacities are extremely stable, not to forget the London Olympics in 2012. These factors are of great importance to investors in such projects.”

Contributed By : Arun Chitnis