The domestic economic environment remained challenging in Q1, with the latest GDP data indicating modest growth rate of 4.7% in Q4. Inflationary pressure, though stabilised, still remained high as do interest rates. However, both fiscal deficit and current account deficits remained within the target range. The Reserve Bank of India (RBI) granted preliminary banking licences to two entities after a year-long application process and indicated that issuance of new banking licences will now be a continuous process.
Office take-up in the city increased considerably over the quarter recording 0.9 million sq ft of take-up, an increase of 288% quarter-on-quarter (q-o-q) and 69% year-on-year(y-o-y). The IT sector was the primary demand driver in the city which accounted for 87% of the total. The PBD and more particularly Madhapur, accounted for 90% of the city’s take-up in Q1.
New supply measuring 1.5 million sq ft entered the market in Q1. This new supply was entirely centered in the Hitec City and Gachibowli, in the prime PBD micro-market. Total A-grade stock now stands at 40 million sq ft, up from 38.5 million sq ft in Q4 2013. The office vacancy rate increased from 11.3% in the previous quarter to 14.5% in Q1, thereby exerting downward pressure on rents. Consequently, rents remained stable across all micro-markets with the expectation for a flat outlook over the next six months.
The retail sector was also buoyant with new stores opening in the Apparel, Fashion & Lifestyle and Electronics segment - primarily from multi-national brands. Despite new store openings, retail consumer demand is slowing which is forcing occupiers to delay their real estate expansion strategies for the short to medium term. Thus, no new malls were completed, keeping stock at 2.2 million sq ft.
Rents in malls and high streets remained stable, though many occupiers have been negotiating on rents with their landlords. In light of moderate demand forecasts coupled with a strong supply pipeline, rents are expected to be stable for at least the next two quarters.
Source : DTZ (Groupe UGL)