HYDERABAD - Q3 2009 Office and Retail Update

Abhishek Kiran Gupta, Head - Research, Jones Lang LaSalle Meghraj

Hyderabad Office Sector - 3Q '09

Hyderabad office market continued to witness an increase in overall leasing activity in 3Q09 as compared to the last two quarters. The CBD (Begumpet, Somajiguda, and Raj Bhavan Road) did not witness any tenant vacating spaces for the first time in the year in 3Q09.However, there were incidents of tenants vacating spaces in SBD (Banjara Hills and Jubilee Hills) and Hitec City. The overall netabsorption witnessed a significant increase in 3Q09. Most of this absorption is due to the completion of the buildings that were pre-leased in the previous quarters. The overall vacancy increased in 3Q09 as compared with 2Q09, due to the high vacancy in the newly completed buildings in suburbs.

The city witnessed completion of three buildings in 3Q09 that include Divyasree Solitaire and Divyasree Trinity II in Hitec City and SecondPhase of DLF Cyber City in Gachibowli. This added about 1.3 million sq ft to the total stock and increased it to 17 million sq ft in 3Q09.The CBD and SBD did not witness any completion in 3Q09. The projects in SBD that are in the final stages of completion continued to move at a

slow pace as they did not witness any leasing.

The overall rental values continued to correct for another quarter in 3Q09. However, the rate of correction has slowed down as compared with 2Q09. Hitec city witnessed the highest correction as compared with the

other micro markets that was about 8% q-o-q (24% of correction from the peak in 3Q08). The capital values remained stable in most of the micro markets that shrank the yield rates in 3Q09.

Hyderabad Retail Sector - 3Q '09

Sentiment in the Hyderabad retail market continued to improve in 3Q09, witnessing a moderated demand. Due to the success of GVK Mall and other malls in the city in attracting strong footfalls, the market condition was optimistic in 3Q09 compared with the previous twoquarters of 2009. Net absorption in 3Q09 increased compared with that in 2Q09. However, despite the slight optimism witnessed by the market in 3Q09, we cannot state that demand has increased and the market conditions are improving based solely on this increase in netabsorption. This is because most of this net absorption came from pre-leased space in the previous quarters in newly operational malls.The high street continued to remain the prime choice of the retailers, where the retailer leased the entire building. Trent Ltd leased twosuch buildings in previous quarters and started their stores of Landmark (at Banjara Hills) and Westside and landmark (at Somajiguda) in 3Q09. There were few incidences of retailers leasing vanilla stores in the newly operational Inorbit Mall. There were no pre-leases recorded in 3Q09.

The IT hub of Hyderabad – Hitec City - witnessed its first mall (Inorbit Mall) going operational in 3Q09. With the operation of this mall, Hyderabad saw its first Hyper City store of about 100,000 sq ft. The MPM Bonsai mall is almost in the final stages of its completion and has been again postponed for another quarter as it awaits final approvals.

The overall rental values corrected by 9% q-o-q in 3Q09. This is about a 44% correction from its peak in 3Q08. The prime central micro market Banjara Hills and Jubilee Hills corrected by 4% q-o-q in 3Q09 and

prime suburbs- Hitec City and Gachibowli corrected by 9% q-o-q in 3Q09. The revenue share and minimum guarantee model continued tostrengthen its hold on the market as Inorbit mall has leased most of

its space in this model.