INDIAN REAL ESTATE:

POISED FOR HIGHER

GROWTH
A Cushman & Wakefield Research Publication OCTOBER 2014
CONTENTS

Executive Summary 1
Global Economy and India 2
Investment Landscape 7
Demand - Supply Gap Analysis 12
- Residential Sector 12
- Commercial Office Sector 15
- Retail Sector 19
- Hospitality Sector 22
Conclusion 25
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

emphasizing on inclusive growth by making India a global

EXECUTIVE SUMMARY manufacturing hub (with the Make In India initiative) and relaxing
VISA norms. Through its dialogue, announcements and actions,
After a subdued year of growth in 2013, 2014 began on an the government has insisted on bringing about change through
optimistic note for the global economy. However, unforeseen development. Among other initiatives, it has also enumerated that
calamities and events spoilt the party in the US and the Eurozone. it wants to build 100 'smart' cities in India and allocated funds
The US economy contracted during the first quarter of 2014 towards it. The implication of 100 'smart' cities, bullet trains and
(due to severe weather) and is now expected to grow by 2.1 allied infrastructure developments can hardly be exaggerated; it
percent versus an earlier prediction of 2.8%, according to World will have critical links to sectors such as real estate,
Bank estimates. Despite being mired in geo-political tension, the manufacturing, cement, construction and will impact employment
Eurozone currently has no threat of facing a deflation, even as positively. Therefore, the improvement that we have so far seen in
growth forecasts for 2015 have been cut. the Indian economy will increase manifold as policy measures are
transformed to action.
In Asia, the leading emerging economies of India and China had
suffered a slowdown in growth over the past couple of years. In this report, Cushman & Wakefield aims at exploring the true
However, both economies seem to have arrested this trend in potential of the domestic real estate market against the backdrop
2014. Specifically, India's GDP growth for first quarter of 2014- of the optimistic economic outlook and changing regulatory
2015 was recorded at 5.7%, a significant improvement from 4.6% landscape. The report studies recent trends of investments in
registered in the preceding quarter. In fact, this was India's fastest different real estate asset classes and projects future investment
quarter-on-quarter growth in the last two years. Notably, the destinations. It deep-dives into thriving micro markets located in
manufacturing sector bounced back from a contraction of 1.4% in the top eight cities1 of India and analyses both demand and
Q4 2013 to an expansion of 3.5% during the first quarter. The supply, creating a style guide for investors. Overall, this report
Consumer Price Index (CPI) in August was noted at 7.8%, delves into the current status of the different fractions of the
dropping from 8.28% noted in May 2014. Backed by the Indian real estate industry and makes inferences through future
expectation of a revival, other investment trends are also looking projections within the context of both global and domestic
strong; for instance, total Foreign Direct Investment (FDI) in India economic factors.
has shown a growth of 52% during H1 2014 compared to the
same period last year. Private equity (PE) investment in real estate 1 Top 8 cities includes Ahmedabad, Bengaluru, Chennai, Delhi-NCR, Hyderabad,
Kolkata, Mumbai and Pune
also witnessed an upsurge, with investments in 2014 surpassing
2013 levels by 21% during the first three quarters itself. Cross
border investments reached a four year peak due to attractive
valuations and stable yields. With increased confidence of global
investors, fund houses have been able to raise hefty corpuses.
Moreover, measures such as the introduction of Real Estate
Investment Trusts (REITs) and relaxation of FDI norms is
expected to generate capital infusion for the real estate sector.

Much of the exuberance that is being witnessed in India stems

from the recent Parliament election results. The landslide victory
of Prime Minister Narendra Modi led National Democratic
Alliance (NDA) has not just brought about a stable political
center but also cleared the policy paralysis that India suffered
from in the past couple of years. Moreover, the Modi led
government is now taking steps to ensure that its development
agenda can be implemented; this is evident from the Prime
Minister's meetings with Japan and China and his recent tour of
the United States, generating funds for large infrastructure
projects, stressing on the importance of removing bottlenecks,

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A Cushman & Wakefield Research Publication

GLOBAL ECONOMY AND INDIA TOP PROSPECTIVE INVESTMENT DESTINATIONS FOR 2014-16

1 China (1)
GLOBAL ECONOMY
2 United States (2)
The world economy experienced another year of subdued 3 Indonesia (4)
growth in 2013. Underperformance was witnessed in almost all 4 India (3)
major economies across the world, including emerging ones,
5 Brazil (5)
which had already suffered notable slowdown in growth rates in
6 Germany (6)
2011 and 2012. The US economy contracted during the first
quarter in 2014 (due to severe weather issues) and is now 7 United Kingdom (9)

expected to grow by 2.1%1 versus an earlier prediction of 2.8%. 8 Thailand (8)

Despite an overhang of geo-political tensions (in Eastern Europe) 9 Vietnam (11)
and high fiscal deficit (especially in southern European
10 Russian Federation (11)
economies), the International Monetary Fund (IMF) says that
10 Australia (13)
industrial production rose in Europe in the current year and that
the region (Eurozone as a whole), is expected to grow in 2014. 12 France (16)

The European Commission has assured that there is no threat of 13 Poland (14)
deflation even as growth forecast for 2015 has been cut. Overall, 13 Mexico (7) (x) = 2013 ranking
it must be noted that projections for 2015-2016 are optimistic. Developed economies
15 Malaysia (16)
According to World Bank, the global economy is expected to pick
15 Japan (10) Developing and
up speed and grow at 3.4% in 2015 and 3.5% in 2016. The share transition economies
of high income economies in global growth is also expected to 17 Singapore (22)

improve from a low of approximately 40% in 2013, as per World 0 5 10 15 20 25 30 35 40 45 50

Bank. Importantly, according to latest statistics, expert opinions
Source: UNCTAD World Investment Report 2014
and expected outcome of policy measures undertaken, China and
Note: Percentage of respondents selecting economy as a top destination
India are expected to have arrested any further slowdown of
GDP rates in their respective economies; it is believed that their
growth rates are now poised to strengthen. located in their regions. Corpuses of Private Equity (PE) firms
touched a record level of more than USD 1.0 tn, raising hopes of
According to the World Investment Report 2014 by the United increased PE FDI going forward.
Nations Conference on Trade and Development (UNCTAD),
global FDI flows rose to USD 1.45 trillion (tn) in 2013, an The subdued growth in the global economy still remains a
increase of 9% over the previous year. FDI inflows in developing concern as 2013 proved to be another dampener with a growth
countries reached a new high of USD 778 billion (bn), of 2.4%. Since the global economy displayed distinct signs of
constituting 54% of the total FDI flows. UNCTAD forecasts that strengthening during the second half of 2013, expectations of
FDI flows could rise to USD 1.6 tn in 2014, USD 1.7 tn in 2015 growth rose for 2014. The year 2014 began with robust growth
and USD 1.8 tn in 2016 as economic recovery in developed expectations from economies such as Japan, United States,
economies is anticipated to drive investments. Though developing United Kingdom and Germany. But, geo-political tensions such as
countries received higher FDIs than their developed counterparts the Russia-Ukraine stand-off in Eastern Europe and the crisis
in 2013 a reversal in trend is expected in the next three years. brought about in Syria and Iraq by the Islamic State of Iraq (ISIS)
Long term interest rates are expected to rise in developed have resulted in some uncertainty adversely affecting business
economies, leading to an increase in the yield of their sentiments. Consequently, a weak first quarter performance by
government bonds, adversely impacting FDI inflows to the several major developed economies along with a few emerging
developing countries. ones led to a downward revision in January 2014 forecasts for
some countries.
As per UNCTAD, FDI outflows from developing and transition
economies2 reached a record level in 2013, contributing 39% of
1 World Bank
global FDI outflows or USD 553 bn as Transnational
2 Transition economies: South-East Europe, the Commonwealth of Independent
Corporations (TNCs) from developing economies are States and Georgia.
increasingly acquiring foreign affiliates from developed countries

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INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

GDP GROWTH FORECAST FOR 2014

Canada Russia
UK 0.2%
2.2%
3.2% Euro Zone
U. S.
1.1% China
1.7 - 2.1%* Japan
7.4% 1.6%
Mexico India
2.4% 5.4%

Brazil
1.3%

South Africa
1.7%

Source: IMF World Economic Forecast, July 2014 and * World Bank

THE INDIAN ECONOMY INDIA: KEY INDICES

Increasing CPI, widening Current Account Deficit (CAD), a
depreciating rupee along with sluggish growth in manufacturing 6.0 7
and industrial production led the Indian economy to grow at sub 5.5
6
GDP Growth (%)

CAD/GDP (%)
5% for another year in FY 2014 (Financial Year - 1st April to 31st 5
5.0 4
March). At 4.7% in FY 2014, the growth in economy was
marginally higher than previous year's growth of 4.5%. 4.5 3
2
4.0
The Reserve Bank of India (RBI) had intervened since last 1
September with strong measures to provide support to the 3.5 0
Oct-Dec

Oct-Dec
Jan-Mar

Jan-Mar
Apr-Jun

Apr-Jun

Apr-Jun
Jul-Sep

Jul-Sep

rupee and control inflation. Since then, the RBI raised the
benchmark lending rate – the Repo Rate by 75 basis points to 8%
with a target to bring down inflation. High import duty on select 2012 2013 2014

items and measures such as twin swap windows were put in GDP Growth (%) CAD/GDP (%)
place to boost FOREX reserves. By the end of FY 2014, CAD
had fallen to 1.7% of GDP from 4.7% in FY 2013. This was Source: Reserve Bank of India and Central Statistics Organization

primarily due to sharper decline in imports than in exports. The

rupee also gained some lost ground and appreciated by 15-16% The NDA government has announced a slew of infrastructure
from the lows of 2013. development plans such as revitalizing the Special Economic
Zones (SEZs), developing a number of Industrial Corridors,
In May 2014, India elected a new Central Government, with a developing 100 'smart' cities, introducing high-speed bullet trains
clear majority in the lower house of Parliament - after 30 years. and i-ways for providing web connectivity across the country, etc.
Led by Prime Minister Narendra Modi, the NDA has enthused that would pave the way for faster growth. The government is
the investor and business confidence in the Indian economy – also mulling easing the land acquisition laws to improve
both nationally as well as internationally. accessibility to land.

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A Cushman & Wakefield Research Publication

The FDI cap has been raised to 100% in Railways (select 1. Right to Fair Compensation and Transparency in
operations) and 49% in the defense and insurance sector. The Land Acquisition, Rehabilitation and Resettlement
capital markets regulator – the Security and Exchange Board of Act: In force from January this year, this Act updates the
India (SEBI) approval to set up Real Estate Investment Trusts norms for land acquisition (earlier Land Acquisition Act was
(REITs) and Infrastructure Investment Trusts (InvITs) is expected introduced in 1894) and also addresses issues pertaining to
to bring in the necessary large volumes of capital investments rehabilitation and resettlement (R&R) of those dependent
required to address the huge shortages in real estate and physical on the land being acquired by the government. As per the
infrastructure. The rupee is further cushioned against further Act, developers will need consent of 80% of residents/
Quantitative Easing (QE) by the US fed, as FOREX reserves are owners whose land is acquired for private projects and 70%
near an all-time high of USD 320 bn. in case of Public-Private Partnership (PPP) projects.
Moreover, the Act provides for compensation of up to four
Consequently, the Indian stock market indices have been times the market value in rural areas and up to two times in
touching new highs. The Indian economy posted a growth of 5.7% urban areas. This Act also defines the timelines for
in the April-June quarter of 2014, the highest in the last two conducting necessary procedures in land acquisition such as
years, led by considerable growth in manufacturing, power and six months for Social Impact Assessment (SIA), R&R package,
construction sectors. Japan has committed to invest nearly USD public hearings and enquiry into any objections. It also insists
35 bn over the next five years in infrastructure projects, whilst on awarding R&R within 12 months of declaration of land
China has committed USD 20 bn in the next five years in identified for acquisition. The Act also incorporates penalties
infrastructure projects and industrial parks. With strong signs of a for delays in compensation and R&R.
turn-around and positive macro-economic parameters such as
shrinking CAD and lowering inflation, experts are already revising As aptly reflected in the Act's title, the principle objective is
their full year target for FY 2015 upwards. fair compensation, thorough resettlement and rehabilitation
of those affected and adequately safeguarding their well-
The Indian economy has huge potential for growth and requires being along with bringing in higher level of transparency.
the new government to take steps towards further financial and
administrative reforms while also ensuring their swift 2. Relaxation of Foreign Direct Investment (FDI)
implementation. Reducing structural bottlenecks will provide the Norms: FDI norms for investing in real estate projects
necessary boost for key projects in pipeline. Reigning in the (such as townships, housing, built-up infrastructure, etc.)
inflation will be vital for spurring consumer demand, which in were relaxed in this year's Union Budget. Reduction of
turn would lead to wider economic recovery. The government minimum built-up area requirement for FDI compliant
has a tightrope walk ahead, balancing growth and deficit while the projects from 50,000 sq. m. to 20,000 sq. m and minimum
RBI does a balancing act between inflation and growth to decide investment limit from USD 10 million (mn) to USD 5 mn is
on key interest rates. likely to boost foreign fund inflows significantly. This will
bring in both capital and expertise, ensuring development of
REGULATORY UPDATES & POLICY MEASURES FOR sustainable and quality urban housing in India. In addition,
THE REAL ESTATE SECTOR this will boost urbanization especially in tier II and III cities,
which are struggling to develop large projects as developers
During the past few years, the Indian real estate sector has had
are wary of taking up such ventures.
to confront tough times; difficult economic and business
environment and high inflation affected all stakeholders such as In addition, as per the revised regulations, if a project
occupiers, investors, developers and home buyers. As a result, commits 30% to affordable housing, the minimum
significant unsold inventory and execution delays were prevalent capitalization and minimum area criteria (of FDI) will be
in almost all real estate classes during the past couple of years. non-applicable. This will provide a significant boost to
affordable housing as it opens up a funding avenue to
In the last few months, policy makers have taken several
developers who typically find affordable housing projects
initiatives to revive the real estate sector and improve investor
unviable due to increasing land and financing costs. This
and buyer confidence. Discussed below are key regulatory
regulatory change is likely to bring in significant capital to
changes/policy measures that are likely to transform the Indian
the affordable housing sector and will provide some boost
real estate sector.
to the government's vision of “Housing for All” by 2022.

4
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

3. Relaxation in norms for issue of long-term bonds by more professional investment and management thereby
banks for financing affordable housing: With an aim to increasing participation by multiple retail investors,
ensure adequate credit flow to the affordable housing sector, invigorating transactions andbringing in more transparency.
the RBI allowed issuance of long-term bonds by banks for
raising capital. Lending to the affordable housing sector 5. Infrastructure Investment Trust (InvITs): InvITs have
includes loans eligible under priority sector along with similar provisions as REITs with minor changes to suit
mortgage loans that are limited to INR 5 mn (for houses investments in infrastructure projects in sectors such as
valued up to INR 6.5 mn in Mumbai, New Delhi, Chennai, transport, energy, water, sanitation, communication, social
Kolkata, Bengaluru and Hyderabad) and up to infrastructure, etc. The minimum subscription size has been
INR 4 mn for houses valued up to INR 5 mn in other prescribed at INR 1.0 mn per investor and each unit size has
locations. been decided at INR 0.5 mn.

4. REITs: SEBI approved REITs regulations in September 2014. With the introduction of InvITs, a suitable structure for
The major highlights include: financing/refinancing of infrastructure projects, which require
massive investments, is likely to evolve in India. Focus on
?key parties in an REIT structure include: the trustee building infrastructure will help reduce supply side
(registered with SEBI), the sponsor and the manager constraints for various sectors and industries.
?can raise funds through an initial public offer (IPO) and
follow on offers once listed. 6. Real Estate (Regulation and Development) Bill: With
the Central Government focussed on reviving the sector,
?should come out with an IPO within 18 months of the Real Estate (Regulation and Development) Bill may be
registration with SEBI introduced during the Parliament's winter session in
?should have minimum asset size of INR 5 bn with a November-December 2014. The earlier United Progressive
minimum initial offer size of INR 2.5 bn and a minimum Alliance (UPA) government had introduced a version of this
25% public float Bill in the upper house of Parliament – the Rajya Sabha in
2013, but it was not passed. The Bill entails the formation of
?all units may be offered only to high net-worth
a Housing Regulatory Authority (HRA) to ensure
individuals (HNI's) and institutions for whom the
compliance of all obligations by the developer and increase
minimum subscription size will be INR 200,000 per
transparency in the housing sector. A few mandatory
investor and each unit size shall be INR 100,000
conditions in this Bill include:
?shall invest in commercial real estate assets, either
a. Prior approvals: The Bill restricts launching or
directly or through Special Purpose Vehicles (SPVs)
marketing of a residential project prior to securing
?at least 80% of the value of REIT assets shall be necessary clearances. Presently, developers initiate
completed (Occupation Certificate received) and rent projects in pre-launch stages and garner funds even
generating (75% area leased out) though required approvals might not be in-place.
?at least 90% of the net distributable income after tax However, in case the project is unable to get
shall be distributed as dividends for unit holders approvals/clearances, developers delay execution and is
sometimes even forced to scrap it. Prior approvals will
The introduction of REITs will provide access to funding for ensure that developers commence bookings only when
developers, better valuations for commercial properties, projects receive a go-ahead from approving authorities.
access to individual investors in commercial real estate and a
b. Separate account for funds: The Bill requires
more structured and transparent commercial real estate
developers to deposit 70% of all proceeds in an escrow
market. Unlocking the value of good quality assets and
account to cover costs associated with a particular
creating liquidity through REITs show the maturity of the
project. This will aid in timely completion, prevent
Indian real estate, as globally REITs are found in mature
diversion of funds to other projects, and as a result,
economies. In those economies, REITs have reduced
protect buyer interests.
individual speculation in real estate assets and allowed for

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A Cushman & Wakefield Research Publication

c. Mandatory disclosures: As per the Bill, developers The Government intends to develop 100 'smart' cities and it
will have to disclose details such as layout plans, plan of has committed an initial amount of INR 7.06 bn to meet its
development works, land status, carpet area, number of target. Formation of such cities will mobilize employment,
the apartments booked, status of the statutory development and create new real estate markets. The first
approvals, etc. on the HRA's website. This will ensure step towards this project was taken during PM Modi's
transparency in transactions and helps all stakeholders, recent visit to Japan, where he inked a MoU (Memorandum
including buyers and PE investors to take informed of Understanding) to assist in the transformation of his Lok
decisions. Sabha constituency, Varanasi, into a smart heritage city on
the lines of Kyoto.
7. Other Policy Measures: The tax exemption limit on
personal incomes has been raised from INR 200,000 to As discussed, a number of regulatory changes/policy
INR 250,000 at a time when the country is recovering from measures have been initiated and are likely to bear a positive
a sustained period of high inflation. Such measures will help impact on the Indian real estate sector. Such policies will
household savings. Additionally, the limit on home loan help reduce the risk perception associated with the sector
interest has been increased from INR 150,000 to INR and ensure greater transparency in transactions. This
200,000. Increased savings coupled with an increased tax transformation is expected to attract larger global
benefit will go a long way in motivating home buyers who investments that will contribute to better real estate
have been sitting on the fence for a few years, reeling under product offerings and a more vibrant, matured real estate
the pressure of high inflation and high interest rates. sector.

MAJOR REGULATORY UPDATES

REGULATIONS STATUS

Right to Fair Compensation and Transparency in Land Implemented from January 2014
Acquisition, Rehabilitation and Resettlement Act

Relaxation in FDI norms for real estate sector Approved in July 2014

Relaxation in norms for issue of long term bonds by banks for Approved in July 2014
financing affordable housing

Real Estate Investment Trusts (REITs) Approved in September 2014

Infrastructure Investment Trusts (InvITs) Approved in September 2014

Real Estate (Regulation and Development) Bill ? Likely to be introduced in the winter session of
Parliament (Nov-Dec 2014)

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INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

INVESTMENT LANDSCAPE DEFINITIONS (TYPE OF INVESTMENTS)

Institutional: Institutional refers to an investor, such as a

FOREIGN DIRECT INVESTMENTS (FDI) IN INDIA bank, insurance company, retirement fund, hedge fund or
mutual fund, which is financially sophisticated and makes
Total FDI inflows in India recorded a growth of 52% in H1 2014
large investments, often held in very large portfolios of
compared to the same period last year and were recorded at
investments.
INR 909 bn (USD 1.5 bn) between January and June 2014, based
on data released by the Department of Industrial Policy and Cross Border: A transaction is defined as "cross-border" if
Promotion (DIPP). The Construction Development sector the buyer or major capital partner is not headquartered in
retained its second position behind the services sector, with an the same country where the property is located.
11% contribution to the cumulative FDI inflows since 2000.
Contribution of the construction development sector in FDI Public Listed/REITs: companies and/or funds traded in
inflows for H1 2014 also improved to 4.0% from 3.8% on a year- open public markets, whose business is primarily geared
on-year basis. toward investing in, operating or developing commercial real
estate, including REITs, REOCs (Publicly traded
Cross border investments in real estate reached their highest development/Property Management/ Non-REIT property
level in 2014 compared to the last four years, with over 85% Owner/ Operator) and publically-listed funds.
contribution to overall investment activity. High levels of cross
border investments were primarily due to attractive valuations of Private: Refers to companies whose control is in private
assets, which presented a significant upside potential. However, hands and whose business is primarily geared towards
institutional investments in the real estate sector, which had operating, developing, or investing in commercial real estate.
peaked in 2011, steadily declined over the past few years. Share
of investments made by private players also reduced to 8% in User/Other: Users of commercial property for specific
2014 compared to levels in previous years. purposes; business users, government, educational or
religious institutions who own real estate for their own use.

INVESTMENT ACTIVITY
FDI IN CONSTRUCTION DEVELOPMENT
5%
17% 18% The total FDI in the Construction and Development sector was
32%
recorded at INR 36.0 bn (USD 594 mn) in H1 2014, a 58%
25% 55% increase from the same period in 2013. Although investments in
49% 85% the Construction and Development sector have declined
45%
8%
58% 11%
FDI INFLOWS
14% 32% 2,500 180
23% 8%
FDI in Construction Development

9% 7% 160
FDI Inflows (INR Billion)

2010 2011 2012 2013 2014 YTD* 2,000 140

120
(INR Billion)

User/Other Private Public Listed/REITs

1,500
Cross-Border Institutional 100
80
Source: Real Capital Analytics 1,000
60
500 40
With the Indian GDP expected to grow at a faster rate (after
20
two years of sub 5% growth) and its allied positive linkages, PE 0 0
funds have been able to raise hefty corpuses for investment in 2008 2009 2010 2011 2012 2013 H1
Indian real estate, a definite signal of confidence of reputed global 2014

investors. Overall FDI (LHS) FDI in Construction Development (RHS)

Source: Department of Industrial Policy & Promotion,

* January - September Cushman & Wakefield Research

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drastically from an average of INR 157 bn (USD 3.5 bn) in 2008 Realty Fund, JP Morgan, ASK Advisors and even through direct
and 2009 to approximately INR 69 bn (USD 1.2 bn) in 2012 and agreements with local developers to invest in projects. Although
2013, higher interest levels from cross border investors for both such a partnership entails higher risk due to limited
residential and office assets are expected to increase FDI inflows. diversification and higher commitment of funds, the potential for
We expect the Construction and Development sector to attract return increases manifold. This is a clear indication that foreign
higher levels of capital in the second half of the year and exceed funds now have higher confidence in the Indian market.
2013 levels.
PE INVESTMENTS IN REAL ESTATE SECTOR (PERE)
PE FUND RAISING
Post the global economic slowdown in 2008, the RBI had
On the back of rapid GDP growth during 2006 to 2008 and high discouraged banks from providing capital to the real estate
demand for real estate, fund raising by PE investors and sector. This led to an increase in cost of capital for developers
developers was extremely high. Fund raising in the real estate borrowing from other lending sources, which was quite high and
sector had peaked in 2006, with fund flows touching availability for which was limited. To meet capital requirements,
approximately INR 106 bn (USD 2.3 bn). But then it declined developers are increasingly partnering with PE funds. This year
gradually until 2009 with no new funds raised in 2010. From 2012 alone PE funds have invested close to INR 89.0 bn (USD 1.5 bn)
onwards, property valuations have become increasingly attractive. in the real estate sector until September 2014; more than double
Given the stable yields and the current positive outlook of the the amount invested during the corresponding period in 2013
economy, fund raising in the real estate sector has significantly (INR 42.7 bn/USD 0.7 bn) and have also surpassed the total
improved since 2012; in both 2013 and 2014. Foreign investors investment levels for 2013 by 21%. This substantial increase in
have shown a high interest in the Indian real estate sector, investments has been predominantly in under construction
registering a 79% and 65% share respectively in the overall capital residential projects followed by acquisitions of leased office
raised in both years. Close to INR 149 bn (USD 2.5 bn) has been assets. The total number of deals also increased to 46 in the first
raised in the first three quarters of 2014 and has already three quarters of 2014 compared to 40 in the whole of 2013.
exceeded 2013 levels (INR 77 bn / USD 1.3 bn). A number of
sovereign and pension funds have committed funds to Indian real Though investment activity was vibrant in the first two quarters
estate such as All Pensions Group (APG Group), Abu Dhabi of 2014, it gained further momentum in the third quarter.
Investment Authority (ADIA), Qatar Investment Authority (QIA), Investments worth INR 49.0 bn (USD 0.8 bn) were committed
Canada Pension Plan Investment Board (CPPIB), State General during the third quarter. While domestic funds contributed
Reserve Fund of Oman (SGRF), Government of Singapore majorly (57%) to the overall investments in 2013, foreign funds
Investment Corporation (GIC), etc. through fund managers such dominated in the first three quarters of 2014 with a 69% share in
as Piramal Fund Managers (IndiaREIT), Xander Advisors, Kotak overall PE investments.

FUNDS RAISED BY PRIVATE EQUITY FIRMS ANNOUNCED PERE INVESTMENTS

IN REAL ESTATE SECTOR
200 70
160
180
Transaction Size (INR Billion)

60
140 160
50
Number of Deals

120 140
120 40
100
INR Billion

100
80 30
80
60 60 20
40 40
10
20 20
0 0
0 2008 2009 2010 2011 2012 2013 2014
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD*
YTD*
Domestic Offshore Domestic (LHS) Foreign (LHS) Number of Deals (RHS)

Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research

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INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

PERE INVESTMENTS - BY CITY for the first three quarters of 2014 registered at INR 24.0 bn
(USD 0.40 bn), more than 5 times the investments made during
Delhi-NCR, Mumbai and Chennai witnessed increased
the corresponding period last year. Bengaluru, recorded a
investments from PE funds during the first three quarters of 2014,
marginal growth of 4% from the same period last year with
with an increase in both transaction volume and number of deals
investments of INR 20.6 bn (USD 0.34 bn). Investments in
from the corresponding period last year. Investment levels in
Bengaluru were primarily made in the leased office assets (56%)
Bengaluru remained stable while they declined in Pune.
while those in Mumbai were largely in residential assets (70%).
Pune was the only city, which witnessed a decline in PE
ANNOUNCED PERE DEALS - BY CITY transactions levels from last year; investment volume for the first
25 three quarters of 2014 was recorded at INR 2.2 bn (USD 37
mn), a 72% decline from the previous year. PE investments in
20 Chennai for the first three quarters increased by over ten times
Number of Deals

the previous year and stood at INR 2.7 bn (USD 45 mn), all of
15 which were invested in the residential assets.

10
PERE INVESTMENTS - BY ASSET CLASS
5
Until September 2014, the commercial office sector attracted
highest PE investments, which stood at INR 44.2 bn (USD 0.73
0
2008 2009 2010 2011 2012 2013 2014 YTD* bn), close to double of last year's total figures. The sector
Mumbai Delhi-NCR Bengaluru Pune Chennai Others
contributed close to 50% of the overall investment volume
recorded in 2014, all of which were made in leased office assets.
Source: Cushman & Wakefield Research The number of transactions in office assets also increased to 7
from 3 last year.
Approximately 41% (INR 36.7 bn/USD 0.6 bn) of the total ANNOUNCED PERE DEALS - BY ASSET CLASS
investments during the first three quarters of 2014 was noted in
Delhi-NCR, primarily in leased office assets, which is an increase 40

of close to 6 times compared to the first three quarters of 2013. 35

Delhi-NCR overtook Bengaluru and Mumbai; cities that 30
Number of Deals

traditionally attracted maximum investments in the country. 25

However, both Mumbai and Bengaluru witnessed an increase in 20
investments from last year. Overall, the deal volume in Mumbai
15
10
PERE TRANSACTION SIZE - BY CITY 5

0
80 2008 2009 2010 2011 2012 2013 2014 YTD*
70
Transaction Size (NR Billion)

Mixed Use Residential Office Retail Hospitality Others

60
Source: Cushman & Wakefield Research
50
40
The residential sector witnessed investments of close to INR
30
41.8 bn (USD 0.69 bn) during the first three quarters of 2014,
20
more than double of the corresponding period last year. The
10
number of transactions in the residential asset sector more than
0
2008 2009 2010 2011 2012 2013 2014 YTD*
doubled to 38 during the period, with average transaction size
remaining stable at around INR 1.1 bn (USD 18 mn). The retail
Mumbai Delhi-NCR Bengaluru Pune Chennai Others
sector witnessed only one transaction with an investment of
INR 3 bn (USD 50 mn) in Bengaluru. The investor interest in the
Source: Cushman & Wakefield Research

9
October 2014

A Cushman & Wakefield Research Publication

hospitality sector remained low with no investments in the CORPORATE TRANSACTIONS - BY ASSET CLASS
segment recorded till September 2014.
600 120

PERE TRANSACTION SIZE - BY ASSET CLASS 500 100

Number of Deals
400 80

INR Billion
50
45 300 60
40
200 40
35
INR Billion

30 100 20
25
0 0
20
Commercial Residential Mixed Use Hospitality
15
10 Transaction Size (LHS) Number of Deals (RHS)
5 Source: Cushman & Wakefield Research, Real Capital Analytics
0
2008 2009 2010 2011 2012 2013 2014 YTD*

Mixed Use Residential Office Retail Hospitality Others investments during the first three quarters of 2014 at
approximately INR 44.5 bn (USD 0.74 bn). Investment levels also
Source: Cushman & Wakefield Research
improved in Delhi-NCR by approximately 62% and were
registered at INR 24.3 bn (USD 0.40 bn) in commercial offices
CORPORATE TRANSACTIONS IN REAL ESTATE
(58%) and residential assets (42%). Chennai witnessed investment
Based on data from Real Capital Analytics, total corporate volume of INR 10.0 bn (USD 166 mn), the highest in South India,
transactions in the real estate sector during the first three surpassing Hyderabad and Bengaluru. Bengaluru recorded
quarters of 2014 were estimated at INR 108.8 bn (USD 1.8 bn); investments of INR 5.9 bn (USD 98 mn) and Hyderabad
this was more than double the figure recorded during the same recorded investments of INR 8.4 bn (USD 140 mn).
period last year (INR 45.2 bn/USD 0.76 bn). The increase was
primarily due to private companies building up their real estate
portfolio. CORPORATE TRANSACTIONS - BY ASSET CLASS

500 120
CORPORATE TRANSACTIONS - BY ASSET CLASS 450
100
With large investments in the residential development site assets, 400
Number of Deals

350
especially in Mumbai, the residential asset class (INR 75.3 bn/USD 80
INR Billion

300
1.3 bn) recorded the highest share (69%) in total corporate 250 60
transactions, followed by the office sector with INR 27.2 bn (USD 200
0.45 bn) worth of transactions during the first three quarters of 40
150
2014. Investment levels also doubled in the hospitality sector with 100
20
INR 4.3 bn (USD 71 mn) invested in 2014 so far. 50
0 0
Mumbai Delhi- Bengaluru Pune Chennai Others
CORPORATE TRANSACTION - BY CITY NCR
Transaction Size (LHS) Number of Deals (RHS)
With large residential development site transactions in suburban
and peripheral locations, Mumbai attracted the highest level of Source: Cushman & Wakefield Research, Real Capital Analytics

10
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

RECENT PERE DEALS

DEVELOPER/OWNER ACQUIRER PRODUCT MIX CITY VALUE (INR MN)
Unitech Corporate Parks Brookfield Asset Management Leased Office Delhi-NCR, Kolkata 20,500

Tata Realty and Infrastructure Ltd Xander Group Leased Office Mumbai 6,500

Leela Palace Carnival Group Leased Office Kochi 2,800

Kapstone Constructions (Rustomjee Developers) Xander Group Residential Mumbai 3,700

Peninsula Brookfield Ansal Properties Residential Delhi-NCR 3,000

Ozone Group Blackstone Group Residential Chennai 1,750

Source: Cushman & Wakefield Research

SELECT CORPORATE TRANSACTIONS

DEVELOPER/OWNER ACQUIRER PRODUCT MIX CITY VALUE (INR MN)
Uttar Pradesh Industrial Development Authority Infosys Office Delhi-NCR 13,540

Tata Steel Oberoi Group Residential Mumbai 11,550

Clariant Chemicals Lodha Group Residential Mumbai 11,540

New Great Eastern Mills & Mahindra Lifespaces Peninsula Land Limited Residential Mumbai 6,500

Unitech Group Gulshan Homz Residential Delhi-NCR 4,000

DivyaSree Developers Cognizant Office Hyderabad 1,120

Source: Cushman & Wakefield Research

OUTLOOK government has also relaxed norms for FDI and introduced
REITs and InvITs, all of which are expected to result in higher
The new government has given special importance to the real
capital inflows. We expect overall private equity investments to
estate sector with a number of policy announcements. The
exceed INR 120 bn (USD 2.0 bn) by the end of 2014.

11
October 2014

A Cushman & Wakefield Research Publication

pivotal role in generating this additional demand. The top eight

DEMAND - SUPPLY GAP ANALYSIS cities of India are likely to constitute approximately 23% of the
demand, amounting to 2.95 mn housing units by the end of 2018.
These cities will continue to act as nerve-centres of growth in
RESIDENTIAL SECTOR
the coming years due to their strong economic base and existing
With around 122,000 units being launched in the top eight Indian infrastructure.
cities during Q1 and Q3 2014, the residential real estate sector in
India has been more or less stable despite the subdued economic The growth of India's middle class population along with an
conditions confronting the sector for past few years. Bengaluru, increase in income, improvement in access to mortgage funding,
Mumbai and Delhi-NCR remain the hotspots and accounted for attractive payment schemes offered by a few developers and
around 60% of unit launches in 2014. As of Q3 2014, capital good returns from the asset class have led to an increase in the
values appreciated 5-13% in Bengaluru and 3-8% in Mumbai growth of investments from this group. The Middle Income Group
compared to the same period last year. As Bengaluru is largely (MIG)1 is expected to generate the highest demand of 1.08 mn
end-user driven and Mumbai has a fair mix of end-users and units across the top eight cities till 2018, followed by Lower
investors, capital values have improved from the last year. Income Group (LIG)2 which is expected to generate demand of
However, capital values in Delhi-NCR declined 2-11%, primarily nearly 1.05 mn units, and the Higher Income Group (HIG)3 will
due to significant unsold inventory. Chennai, Kolkata and Pune generate a demand for 0.52 mn units. Thus, both LIG and MIG
accounted for additional 33% of unit launches in 2014. As of Q3 will account for nearly four-fifths of the total demand in these
2014, capital values recorded marginal appreciation, 4-10% in eight cities.
Chennai, 1-5% in Kolkata and 2-15% in Pune, compared to the
same period last year. DEMAND-SUPPLY ANALYSIS BASED ON
A notable trend in 2014 was that the developers focussed INCOME GROUP (2014-2018)
primarily on mid segment offerings considering that this category
has been largely underserved since the past few years. Around 20%
68% units launched in first three quarters of 2014 were in the 19% 21%
mid segment, registering a significant increase from 56% during 20%
40%
the same period of 2013.
Demand
The residential sector has been largely subdued across cities as 58% Supply
23%
high levels of unsold inventory exist, launches of new projects Gap

have been postponed amidst sluggish demand and capital values

have largely been stable. High-end segment's capital values in 41% 59%
select areas of Delhi-NCR, Mumbai, Ahmedabad and Hyderabad
recorded declines of up to 14% over the year (from Q2 2013 to LIG MIG HIG
Q2 2014) due to low sales volumes and high inventory levels.
Source: Cushman & Wakefield Research
Meanwhile select mid segment locations in Bengaluru, Kolkata
and Pune witnessed appreciation up to 24% during the past year
due to sustained demand. Delhi-NCR is expected to witness maximum cumulative demand
of nearly 818,600 housing units by the end of 2018, followed by
Future Demand-Supply Analysis Bengaluru with a demand of 438,700 units. Kolkata and Pune will
record the lowest and second lowest demand for approximately
Cushman & Wakefield Research estimates that overall urban
97,200 and 191,200 units respectively during the same period.
housing demand in India is expected to be nearly 13 mn units by
the end of 2018. Besides the natural growth in population and
declining household sizes leading to an increase in the demand
for housing, increasing urbanization catalysed by migration of
rural population to cities, development of industrial clusters and 1 MIG – Households earning INR 150,001 to INR 1mn per annum

the proposed development of smart cities are likely to play a 2 LIG – Households earning up to INR 150,000 per annum and above poverty line
3 HIG – Households earning above INR 1mn per annum

12
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

The existing under construction and planned pipeline is for 1.31

CONTRIBUTION TO TOTAL SUPPLY: CITY WISE (2014-2018)
mn units, expected to be delivered across the top eight cities by
the end of 2018. Some of these units have already been sold to 100%
buyers and investors. Past trends suggest that at least 1.0 million
90%
units will be launched by 2018 end. Hence, there will be still be a
huge shortfall to tackle the expected new demand that will be 80%

generated by 2018. This does not take in to consideration the 70%

total housing shortage of 18.78 mn units estimated by the
60%
Ministry of Housing and Urban Poverty Alleviation (MHUPA),
India in 2012, which has still not been tackled by either the 50%

government or private developers. 40%

Developers have been refraining from venturing into affordable 30%

housing construction due to issues such as high land cost, lack of 20%
availability of funding at competitive rates, longer construction
10%
timelines, change in location demand and capital values, limited
FSI, etc. These factors contribute in making affordable housing a 0% Bengaluru
Ahmedabad

Chennai

Hyderabad

Mumbai

Pune
Kolkata

Delhi -NCR
not-so-profitable business proposition for developers. The
expected supply for this segment is just 21% of the total supply
across top eight cities till 2018. Thus, nearly 58% of the cumulative
demand-supply gap across the top eight cities is contributed by Source: Cushman & Wakefield Research
LIG. With respect to the cities, Delhi-NCR, Kolkata, Mumbai and
Pune are expected to witness the highest shortfall in LIG units. Ahmedabad, Bengaluru, Mumbai and Delhi-NCR are expected to
lead the ranks of those with the highest shortfall of housing units
Despite accounting for nearly 59% of the total anticipated supply, catering to MIG.
MIG will record a share of nearly 23% in the total estimated gap
across the top eight cities in India by 2018-end. Cities such as Even though the HIG segment is expected to witness an over-
supply scenario in certain cities such as Mumbai and Kolkata, it
CONTRIBUTION TO TOTAL DEMAND: will record a share of nearly 20% of the total gap across the top
CITY WISE (2014-2018) eight cities. Bengaluru, Chennai and Delhi-NCR are the leaders in
cities with the highest demand-supply gap for HIG units.
100%

90% Impact On Real Estate

80% According to estimates by Cushman & Wakefield Research, at

the current pace of construction activity, the demand-supply gap
70%
is expected to narrow in 2015 and then increase steadily in
60% subsequent years. However, due to extension of construction
50%
YEAR WISE DEMAND - SUPPLY GAP
40%

30%

20%

10%
2014
1.0X
2015
0.7X
2016
1.4X
2017
2.1X
2018 2.2X
0%
Bengaluru
Ahmedabad

Chennai

Hyderabad

Mumbai

Pune
Kolkata

Delhi -NCR

Source: Cushman & Wakefield Research

Source: Cushman & Wakefield Research Note: The size of the circle represents the gap for the year taking 2014 as the base

13
October 2014

A Cushman & Wakefield Research Publication

timelines or any delay in obtaining the regulatory approvals of However, these initiatives are not enough to counter the existing
projects scheduled to be delivered in 2015, the gap in 2015 might challenges faced by the sector. India's housing shortage is
widen due to spill over of project completions to later dates. A dominated by households belonging to the Economically Weaker
high spill over of supply from 2015 to later years might steadily Sections (EWS) and LIG, which together contributed to 95% of
increase the gap across the top eight cities from 2014 as the the urban housing shortage in 2012 as per MHUPA estimates. To
supply is expected to fall significantly short of the demand each increase the attractiveness of EWS and LIG housing, some
year. specific measures such as allocating suitable land to developers,
developing organized rental housing, providing access to funds at
lower rates for building low cost affordable housing projects,
CITY WISE CONTRIBUTION TO OVERALL GAP reducing duty on import of technology and machinery aiding
affordable construction, developing schemes using local sourcing
Ahmedabad
of materials, encouraging micro finance schemes to enable EWS
25%
Pune Bengaluru and LIG population to access loans, etc. need to pursued
20%
vigorously.
15%
10%
Further, the long gestation periods in residential projects being
5%
Delhi-NCR 0% Chennai started and completed due to delays in approvals expose
developers to multi-fold risks due to change in market
conditions. To prevent this and ensure timely completions, single
window clearance mechanism should be implemented and
Mumbai Hyderabad
processes should be automated to reduce time. Increasing FSI
limits supported by adequate infrastructural development to
Kolkata
promote better usage of scare and expensive land and
Source: Cushman & Wakefield Research promoting land pooling schemes are measures that can help
address land scarcity and reduce housing shortage.
In the current scenario, there is a disparity between the
consumers' expectations and the segmentation of projects
launched by developers. For instance, in Mumbai, the cumulative
HIG supply is expected to exceed demand significantly.
Consequently, due to excess supply in one segment, the overall
gap has reduced, but a large portion of MIG and LIG demand will
still remain unaddressed. Similarly in Kolkata, the LIG demand is
significantly high, but majority of the supply is in MIG and HIG
segment. Thus, this mismatch in demand-supply leads to sluggish
sales and inventory pile-up in the market despite existing
shortfall.

The Way Forward

The NDA Government has initiated a target of 'Housing for All
by 2022' and introduced some policy measures mentioned
earlier. These policy measures seek to invigorate the affordable
housing sector by attracting FDI and domestic capital in large
volumes. The government is following a twin pronged strategy of
boosting demand whilst also removing supply-side bottlenecks.
An approach to boost urbanisation through smart cities and
development of large industrial corridors will help to develop
new residential locations and tackle some of the most important
issues facing the existing cities in India.

14
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

COMMERCIAL OFFICE SECTOR this stock. At 94.5 msf, Bengaluru recorded the highest Grade A
stock amongst the top eight cities, followed by Delhi-NCR at
The commercial office sector witnessed about 20.4 million 79.3 msf and Mumbai at 66.0 msf.
square feet (msf) of Grade A supply across the top eight cities
during January-September 2014, an increase of 9.0% over the Owing to improved occupiers' sentiment, demand for office
corresponding period a year ago. The increase was mainly owing space picked up in most cities during January-September 2014
to a substantial increase (almost 6 times) in Grade A supply in and net absorption was recorded at 21.4 msf, a y-o-y increase of
Hyderabad as many deferred projects got completed during the 34%. Significant increases were recorded in Ahmedabad,
period. This was followed by a 1.7 times increase of Grade A Bengaluru and Hyderabad; in each of these markets, net
supply in Delhi-NCR. On the flip side, supply in Chennai, Kolkata absorption more than doubled over YTD 2013 on the back of
and Pune declined between 60-80% due to construction delays substantial pre-committed absorption. Delhi-NCR also added to
and deferments. the overall increase with a 52% increase in net absorption over
YTD 2013. Kolkata and Pune were the laggards as these markets
PAN INDIA GRADE A STOCK witnessed a decline in net absorption, which varied between 28-
36%, offsetting some of the increase witnessed in other cities.
400

5.0 18.4
7.3
17.3 30.3
SHARE IN NET ABSORPTION (GRADE A)
25.8
300 33.6
32.2
Area (million sf)

38.8 4.2% 2.3%

38.1 Kolkata 2.1% 4.6%
66.0 15.2% 7.2 %
200 62.3 Ahmedabad
8.5%
12.3%
69.3 79.3 Pune
100 6.7% 13.1%
Chennai
88.3 94.5 21.2% 14.5%
Mumbai
0
2013 YTD* 2014 YTD*
Hyderabad
20.2 % Top 3
Bengaluru Delhi- NCR Mumbai Chennai 17.8%
Delhi-NCR contributors
Pune Hyderabad Kolkata Ahmedabad

Source: Cushman & Wakefield Research Bengaluru 20.5% 29.7%

The total Grade A office stock across the top eight cities was 2013 YTD* 2014 YTD*
noted at 368.0 msf as on Q3 2014; prominent cities such as Source: Cushman & Wakefield Research
Bengaluru, Delhi-NCR and Mumbai accounted for almost 65% of
Bengaluru accounted for almost one-third (30%) of the total
CITY WISE SHARE IN SUPPLY (GRADE A) Grade A net absorption, followed by Delhi-NCR and Mumbai
with 20% and 15% shares respectively. The Information
Pune 5.0% Technology and Business Process Management (IT-BPM) and
14.7% 1.8%
2.8% 1.6%
6.1% Banking, Financial Services and Insurance (BFSI) sectors
Kolkata 7.2%
14.2% continued to be the most dominant demand drivers with 62%
Chennai 15.1% and 11% shares respectively in the total Grade A absorption. The
4.2% 16.0% share of the IT-BPM sector in the total absorption increased to
Ahmedabad
15.8% 62% from 53% during YTD 2013 as occupiers expanded their
Hyderabad
2.9% 24.8% Top 3
operations on the back of improved sentiments in developed
Mumbai economies such as the US and EU nations (these countries
contributors
20.9%
Bengaluru typically account for 80% of India's IT-BPM sector's export
29.3% revenues).
Delhi-NCR 19.1%
During YTD 2014, fresh pre-commitments increased y-o-y by
2013 YTD* 2014 YTD*
35% (6.5 msf), reflecting improved sentiments amongst corporate
Source: Cushman & Wakefield Research

15
October 2014

A Cushman & Wakefield Research Publication

occupiers. Bengaluru accounted for significant 65% share as it 3% each compared to the same period last year. This can be
witnessed about 4.2 msf of pre-commitments from IT-BPM and attributed to a host of reasons such as rental correction in select
consulting firms. micro-markets, high vacancy levels in a few micro-markets putting
pressure on rentals and occupiers relocating to better quality
SECTORAL ABSORPTION (GRADE A) Grade A spaces with lower rentals in select sub-markets, thereby
affecting the weighted average rentals. Delhi-NCR, Hyderabad and
Others 11.2% 15.0% Pune witnessed weighted average rents strengthen by 6-8% over
3.7% 0.22%
Energy & Chemicals 3.0%
2.6% Q3 2013. This is due to fresh supply of Grade A buildings at
4.1%
2.0% premium rates and an increase in rents in few existing projects,
Healthcare & 14.2% 3.3%
Pharmaceuticals 3.6% 10.7% which have high occupancies.
7.3 %
Engineering. &
Manufacturing 11.8%
RENTAL VALUES TREND
Telecom

Consulting 62.1%

BFSI 45.3% Ahmedabad,

Bengaluru,
IT-ITES
Kolkata, Mumbai
2013 YTD* 2014 YTD*
Chennai, Delhi-
NCR,
Source: Cushman & Wakefield Research
Hyderabad and
Pune
Overall Grade A vacancy level in the top eight cities was noted at
21.8% at the end of Q3 2014, a marginal drop of 0.6 percentage
points over Q3 2013. This is due to narrowing supply-net
absorption gap as net absorption increased by 33% whereas Future Demand-Supply Analysis
supply increased by 9% during the period. Mixed trends were The total Grade A office stock is expected to breach the 500.0
observed in city level Grade A vacancies. Chennai reported a y- msf mark by 2018 across the top 8 cities, with nearly 184.2 msf
o-y fall of 5.6 percentage points in its vacancy rate as net of Grade A office supply anticipated over the next five years
absorption outpaced supply in YTD 2014. Similarly, vacancy levels (2014-18). Bengaluru is expected to be the first city in India to
in Bengaluru, Delhi-NCR, Mumbai and Pune dropped by about have over 100.0 msf of Grade A stock by 2015. In the medium
2.0 percentage points each in YTD 2014. However, vacancy levels term (2014 -2015), the pan-India supply is likely to be 43% higher
in Ahmedabad and Hyderabad increased by about 5.6 and 2.4 than 2013 as projects that were deferred earlier are expected to
percentage points as supply continued to outstrip demand in be completed. As a result, 2015 will see the highest total Grade A
these markets. supply (45.5 msf) in next five years.

VACANCY RATES TREND

SUPPLY FORECAST - GRADE A (2014-18)

Bengaluru, 50
Chennai,
Mumbai, Delhi- 40
Area (million sf)

NCR and Pune

30
Ahmedabad,
Hyderabad and
20
Kolkata
10

The weighted average rentals for Grade A developments in Q3

0
2014 exhibited a mixed trend. Three of the top 8 cities - 2014 (F) 2015 (F) 2016 (F) 2017 (F) 2018 (F)
Bengaluru, Kolkata and Mumbai witnessed a decline in rentals by
Source: Cushman & Wakefield Research
* January - September

16
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

Bengaluru is expected to have the highest share (32%) in the higher than the average of 26.7 msf over the past five years
overall Grade A supply over the next five years, closely followed (2009-13). Revival in the domestic economy coupled with
by Delhi-NCR and Mumbai with around 21% and 14% shares. improved sentiments in developed economies such as US and EU
Hyderabad is expected to contribute a 10% share in the nations is expected to lead to higher demand for office space
upcoming supply during the period (2014 -18) as the projects over the next five years (2014-18). Also, recent estimates for the
that were deferred due to political instability in the State and annual average net absorption are about 25% higher than the
subdued demand will get now be completed. Kolkata is likely to projections made last year for the same period, owing to
witness supply influx of 4.0 msf each in 2015 and 2016 compared improved fundamentals of the economy and its allied growth
to its historical average of 1.5 msf as a couple of large projects prospects.
are expected to be delivered. This may further increase the
existing vacancy level of 34% in Q3 2014 as demand is not likely Bengaluru is expected to be the highest contributor in overall
to keep pace with supply. Grade A net absorption (primarily led by IT-BPM and Consulting
sectors) with a significant share of 29% in the total cumulative
net absorption during 2014-18. Delhi-NCR and Mumbai are
CITY WISE SUPPLY FORECAST - GRADE A (2014-18) expected to contribute 18% and 17% (to the net absorption)
respectively. Hyderabad and Pune are likely to have around an
60
11% and 10% share respectively followed by Chennai with a 6%
share. Ahmedabad and Kolkata are anticipated to contribute
Area (million sf)

40 about 4% and 3% shares respectively in the total Grade A net

absorption.

20
NET ABSORPTION FORECAST - GRADE A (2014-18)

0 50
Bengaluru
Ahmedabad

Chennai

Hyderabad

Mumbai

Pune
Kolkata
Delhi-NCR

40
Area (million sf)

30
Source: Cushman & Wakefield Research

The top eight cities are expected to witness around 194.4 msf 20

of Grade A net absorption over the next five years (2014-18),

10
amounting to an average of 38.9 msf of annual net absorption,

0
CITY WISE NET ABSORPTION - GRADE A (2014-18) 2014 (F) 2015 (F) 2016 (F) 2017 (F) 2018 (F)

70 Source: Cushman & Wakefield Research

60
The weighted average rents for Grade A developments across
50
Area (million sf)

most cities are anticipated to undergo an average annual

40
appreciation of about 3-4% in the next five years. Mumbai is
30
expected to witness rental appreciation in double digits (average
20 12%) in 2015 and 2016, (highest among the eight cities) in the
10 next five years; much of this appreciation can be attributed to the
0 quality upcoming supply in the submarket of BKC (Bandra-Kurla
Bengaluru
Ahmedabad

Chennai

Hyderabad

Mumbai

Pune
Kolkata
Delhi-NCR

Complex) as this area is one of the most expensive office

destinations in Mumbai.

Source: Cushman & Wakefield Research

17
October 2014

A Cushman & Wakefield Research Publication

real estate costs. However, beyond 2015, the supply-demand gap

WEIGHTED AVERAGE RENTS - GRADE A is likely to decrease as occupier sentiment is expected to revive
150 significantly, on the back of improved global and national
economic conditions. As the Indian economy returns to its
120
higher growth trajectory of close to 8% and above, multinational
companies are expected to increase investments; we expect an
INR/sf/month

90
improvement in demand from specific sectors such as BFSI,
60
Consulting, manufacturing and energy sectors. Also, the
30 improvement of growth prospects in developed economies
would further augment demand for office space from the IT-BPM
0
sector, the biggest demand driver for commercial real estate.
2012 2013 2014 (F) 2015 (F) 2016 (F) 2017 (F) 2018 (F)
This increase in demand coupled with the advent of a number of
Ahmedabad Bengaluru Delhi-NCR Chennai REITs from next year will help developers improve cash flows,
Hyderabad Kolkata Mumbai Pune which in turn will have a positive bearing on the commercial
office sector.
Source: Cushman & Wakefield Research
SUPPLY, NET ABSORPTION AND VACANCY TREND -
Delhi-NCR is the only city, which is forecasted to witness an GRADE A
average annual rental decline of 1-3% during the period, 2015 to
50 25%
2018. This is primarily due to new supply that is expected in the
peripheral submarkets of Gurgaon and Noida; these areas
40 20%
command comparatively lower rents and have higher vacancies
Area (million sf)

than the CBD and SBD locations, hence they will influence 30 15%

Percentage
weighted average rents adversely.
20 10%
Impact On Real Estate
10 5%
In the medium term (by 2015 end), vacancy levels are expected to
inch up due to significant addition of Grade A office space in
0 0%
select cities. Hence, select micro-markets may face downward 2012 2013 2014 (F) 2015 (F) 2016 (F) 2017 (F) 2018 (F)
pressure on rentals. This may favor tenants as they will be able to
Supply (LHS) Net Absorption (LHS) Vacancy (RHS)
negotiate with landlords and get better deals, leading to savings in
Source: Cushman & Wakefield Research

18
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

witness only 5% of the total upcoming supply owing to shortage

RETAIL SECTOR
of suitable land parcels.
As per 2011-12 estimates, organized retail constitutes 7% of the
total retail sector in India and is expected to attain 10.2% share In the first three quarters of 2014, five cities – Bengaluru, Delhi-
by 2016-17. The allowance of 51% FDI in multi-brand retail in NCR, Hyderabad, Kolkata and Pune witnessed total mall supply
2012 met with varying degrees of successes as some states of 1.53 msf. As per Cushman & Wakefield Research estimates, in
viewed it cautiously, while others such as Haryana, Maharashtra the last one year (July 2013-July 2014), 14.9 msf of upcoming mall
and Uttarakhand endorsed it wholeheartedly. Growing space was deferred due to reasons such as financial crunch,
acceptance of online shopping portals has resulted in domestic construction delays and poor response from investors and
and international e-commerce giants increasing their investments retailers.
in India. This will also create a new growth area for retail in India.
As per Cushman & Wakefield Research, the size of the overall DEFERRED MALL SUPPLY IN LAST ONE YEAR
retail market in India is set to reach USD 1,146 bn (INR 68,774
bn) by 2018-19. Although organized retail forms a small
12
percentage of the total retail market, favorable demographic
Malls Deferred (Number)

10 7
factors such as a young population, brand conscious middle class
and growing per capita income levels will drive retail 8
5

Million sf
consumption in India. 6
4
Future Supply 3
2
According to Cushman & Wakefield Research, 70 msf mall space 0 1
is currently operational across the top eight Indian cities. The fact
Hyderabad
Delhi -NCR

Mumbai
Bengaluru
Ahmedabad

Chennai

Pune
Kolkata
that the current mall stock across these cities has doubled since
2008 is indicative of the growth in organized retail formats in the
country, which can be attributed to growing consumerism in the
country. An additional 21 msf is under construction and is Number of Malls Deferred (LHS) Deferred inventory (RHS)

expected to become operational by 2017. Due to the

Source: Cushman & Wakefield Research
cosmopolitan culture and well-developed peripheral locations,
Delhi-NCR and Bengaluru account for 46% and 21% of this
Low supply and moderate demand have led to a marginal
upcoming supply respectively. Despite being the financial capital
decrease in overall mall vacancy levels, which was noted at 14.5%
and a prime cosmopolitan city in West India, Mumbai is going to
in Q3 2014. Both Mumbai and Delhi-NCR registered vacancy

TOTAL UNDER CONSTRUCTION MALL SUPPLY MALL INVENTORY & VACANCY LEVELS
25 35%

30%
6% 20
5% 21% 25%
6%
15
20%
Million sf

Vacancy (%)

11% 5% 15%
10

10%
5
5%

46% 00 0%
Bengaluru
Ahmedabad

Chennai

Hyderabad

Mumbai

Pune
Delhi -NCR

Kolkata

Ahmedabad Bengaluru Chennai Delhi-NCR

Hyderabad Kolkata Mumbai Pune Mall Inventory (LHS) Vacancy (RHS)

Source: Cushman & Wakefield Research Source: Cushman & Wakefield Research

19
October 2014

A Cushman & Wakefield Research Publication

levels of nearly 15% whereas Bengaluru, Hyderabad and Chennai (Gurgaon), Greater Kailash-I (M Block) in Delhi-NCR, Park
maintained low vacancy levels of 5-8%. At 30% and 25% Street in Kolkata and Linking Road, Colaba Causeway in Mumbai
respectively, vacancy levels are currently high in both Ahmedabad are the most expensive main street locations currently in India.
and Pune as retailers are keen on only quality mall spaces or main
streets in these cities. At 4%, Kolkata currently has the lowest
vacancy levels in the country.

Rental Trend
Mall rentals have been largely stable across most micromarkets in
the top eight cities for most of 2014. However, Hadapsar in Pune
was the only micromarket to witness upwards rental movements
in all three quarters this year as retailers are increasingly
occupying the vacant spaces in malls in the location. Select
micromarkets in cities such as Bengaluru, Chennai and Mumbai
recorded some mixed rental trends during select quarters this
year due to a variety of reasons. These ranged from strong
demand for malls resulting in an upward rental trend to reasons
such as adverse impact of infrastructural work in the vicinity
affecting footfalls, poor location, etc resulting in declining rentals.
Mall micromarkets such as Elgin Road and Park Circus in Kolkata,
Lower Parel in Mumbai and South Delhi in Delhi-NCR are the
most expensive locations currently.

Similarly, main street rentals were also largely stable in 2014

across all cities. Again, Pune's established main street locations of
Aundh and FC Road were the only ones to record an upward
rental trend across all quarters this year. Khan Market, Connaught
Place (Inner Circle), South Extension I & II, DLF Galleria

MODE OF ENTRY BY INTERNATIONAL BRANDS IN INDIA

BRAND NAME SEGMENT STATUS IN INDIA ENTRY ROUTE IN INDIA INDIAN PARTNER OWNERSHIP STATUS
Starbucks Coffee Company Food & Beverages Present Joint Venture Tata Global Beverages 50:50

Domino's Pizza Food & Beverages Present Franchisee Jubilant Foodworks Ltd. -

Dunkin' Donuts Food & Beverages Present Franchisee Jubilant Foodworks Ltd. -

Marks & Spencer Apparels Present Joint Venture Reliance Retail -

Tommy Hilfiger Apparels Present Joint Venture Arvind Ltd. -

Hennes & Mauritz AB Apparels Planning Single-Brand Retail NA 100%

Gap Inc. Apparels Planning Franchisee Arvind Ltd. -

IKEA Home and Office Planning Single-Brand Retail NA 100%

Furnishings

International retailers have been making a foray in India through various modes such as joint ventures or partnerships through franchisees, though now
the preference for entry is also tilting in favor of 100% FDI for ownership of their operations as has been witnessed in some recent cases such as IKEA
and Hennes & Mauritz AB. Some other international brands such as Burger King and Uniqlo are also exploring various entry strategies.

Source: Cushman & Wakefield Research

20
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

Emerging Trends in Retail Sector As convenience takes precedence over all other factors for a
modern shopper, the growing contribution of e-retailing in India
Growth strategies of organized retailers have been curtailed as
cannot be overlooked. Going forward, retailers will continue to
many under construction malls have been deferred in the last two
integrate online platforms with their brick and mortar stores, as
years and established main streets are saturated. Only a small
well as employ innovative, out of the box ideas to increase
percentage of quality supply has become operational in the last
footfalls in physical stores. Similarly, e-retailers are looking at
two years, leaving retailers scouting for alternate options to drive
strategies that involve having pick-up points for online purchases
business growth.
made by customers who are not sure about being able to take
delivery at homes or offices.
CATEGORY WISE RETAILER PENETRATION ON
EMERGING MAIN STREETS IN LAST TWO YEARS* In the last couple of years, real estate developers have been
Apparels & Footwear
discouraged from developing new malls and retail real estate
Automobiles
projects due to poor and/or diminishing returns on their
10%
F&B
investments, unless they are part of a mixed-use development; in
1% 2%
28% which case, the returns have been compensated for by the other
Electronics
12% Clinic/Pharmacy
asset classes. This has been due to a variety of reasons such as
poor economic conditions, restricted cash-flows due to revenue-
Home Improvement
sharing models, high costs of capital, high operational costs for
9% 4% Department Store
malls, high vacancy levels, etc. However, there is still much scope
Supermarket
4% 11% for well planned, constructed and managed malls. Indian real
Mom & Pop Store
4%
14% estate developers such as DLF, K. Raheja Corporation and
Salon & Spa
Prestige, amongst others and dedicated mall developers and
Others
managers such as Phoenix have a number of highly successful
Source: Cushman & Wakefield Research malls in operation and they are committed to developing many
more. With REITs now being allowed in India and many
international funds and developers eyeing investment
With urban sprawl increasing, many new residential catchments
opportunities in India, the time is ripe for dedicated retail real
have not been fully exploited. Segments such as apparels &
estate developers to establish themselves in a maturing market.
footwear, electronics and supermarkets have been the most
active in these upcoming main streets. Emerging retail locations
definitely have a cost advantage. On an average, we estimate that
?Uncertainty prevails over the NDA Government's
rentals are 20-30% lower in these micro markets when compared
stand on multi-brand retail in India, which was
to established retail locations. With initial capital expenditure and
opposed in its election manifesto.
product pricing remaining more or less standardized across
locations, emerging main streets are competing with established ?The status of the long delayed Good and Services Tax
main streets by offering much lower rentals and increasing (GST) remain uncertain; if implemented it will be the
revenue generating footfalls. Currently domestic brands dominate biggest tax reform in the country. Retailers will benefit
emerging main streets, but foreign brands are steadily increasing as currently they pay multiple taxes at both Central
their presence. Players who spot early opportunities in the and State levels.
emerging retail destinations will be able to take first movers'
advantage.

Outlook * Across Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai., Dehi-NCR and Pune

The Central Government's ambiguous stance on allowing FDI in

multi-brand retail may slow down the pace with which new
international retailers foray in to the country, but it will not drive
them away completely as after China, India is the next most
important market in Asia for global retailers.

21
October 2014

A Cushman & Wakefield Research Publication

HOSPITALITY SECTOR Government Initiatives

Post the general elections, the sentiment seems to be positive for The impact of the tourism sector can be gauged from the total
the hospitality sector with a slow recovery anticipated to build contribution to the Indian economy (including all allied sectors)
up by beginning last quarter of 2014. Some of the indicators that being 6.2% (as against the 2% direct contribution noted above) in
highlight optimism are: 2013, while employment generated directly by the tourism sector
1
was estimated at 22 mn jobs (4.9% of all employment), and total
?The tourism sector's direct contribution to the GDP is INR
contribution was 35 mn jobs (7.7% of all employment).
2,178 bn amounting to 2% of total GDP, which is estimated to
Historically, the government or the general public have not
grow to INR 4,346 bn (2.1% of GDP) by 2024.
acknowledged such contributions, resulting, for instance, in the
?
2
Foreign Tourist Arrivals (FTA) during the period January- government's role in the development and promotion of the
August 2014 stood at 4.68 mn, compared to 4.36 mn during tourism industry being most minimal in the past decades.
the corresponding period of 2013, registering a growth of
4.9%. In 2013, FTA were 6.8 mn, up 4.1% from 6.6 mn That said, the new government's thrust on the “5Ts: Tradition,
recorded in 2012. At these levels, India accounts for less than Talent, Tourism, Trade and Technology” as outlined in their
0.5% of international travel – indicating a high potential for election manifesto bodes well for the industry, as for the first
growth. time ever, the industry has received acknowledgement for the
role it plays in economic development and employment
3
?Foreign Exchange Earnings (FEE) during January-August 2014 generation.
stood at INR 773.5 bn (USD 12.74 bn) as compared to INR
685.6 bn (USD 12.18 bn) during the same period last year, Some of the major plans for the development of this sector
registering a growth of 12.8% in rupee terms and 4.6% in include the identification of 50 tourist circuits, for which an
dollar terms. amount of INR 5 bn (USD 83.2 mn) has been set aside, the
announcement of the e-Visa scheme and expansion of Visa-on-
?While foreign tourists are minuscule in number, domestic
Arrival to more countries. The tourism circuits that will be
tourists have been the backbone for the tourism (and
developed will cater to a variety of tourist activities such as
therefore, hotel) industry. In 2013, there were an estimated
culture and religion, medical and wellness, leisure, adventure and
1,145 mn domestic travelers4, almost 10% more than the
sports, wildlife and ecological, etc. and the areas that these will be
previous year. However, these travelers mostly used facilities
developed include the Himalayas, Rajasthan's desert, areas along
in the unorganized sector, which indicates the high potential
the Ganga river, coastlines, etc.
for organized sector's growth.
There are other positives, for the larger industry – on the
While the overall arrivals / tourism statistics show a positive
aviation front, addressing the need for accessibility, the
trend, this has not reflected in the performance of the hotel
government has planned the development of airports in Tier II &
sector in recent years. Cushman & Wakefield Hospitality's analysis
III cities, as well as private sector participation in some of the
of hotels performance in the past three years shows declines in
Airports Authority of India (AAI) controlled airports. The
key operating parameters due to multiple reasons. The reasons
commencement of Air Asia's operations, the Tata-SIA airline, as
include the addition of significant inventory in key cities as well as
well as additional international frequencies into Delhi and
the general economic conditions in the last five years.
Mumbai augur well for demand generation. The additions to
As has been the pattern since 2010, and reflective of slow capacity, better airport infrastructure as well as competition for
economic conditions, hotel openings have also been delayed market share will result in greater population taking to the skies
across major cities in the upscale to luxury segments due to for leisure and business – a positive for the hotel space.
funds crunch. That said, there were positives, in that there was an
The recent announcements made by the government aimed at
increase of around 7,200 keys, in the top eight cities, to inventory
reinvigorating sectors as diverse as aeronautics, construction and
of branded hotels in the country from 2012 to 2013.
others will fuel business demand for hotel rooms at least in the
major gateways in the immediate future, with demand further
1 World Tourism & Travel Council, Travel & Tourism Economic Impact 2014, India
percolating to sites selected for actual investments.
2 Ministry of Tourism, Government of India
3 ibid
4 Defined as those Indians who travelled outside of their normal place of Focus on building infrastructure will help to reduce supply side
residence for any purpose, for at least one night constraints for various sectors and industries, besides helping

22
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

boost real estate development along these transportation nodes. The top eight cities achieved an Average Occupancy Rate (AOR)
In the medium to long term, these investments will spur demand of 59% in 2013, while during the first half of 2014 they achieved
for accommodation facilities in these development hubs – again, a an AOR of 54%, with the best performing months yet to come
positive for the hotel industry. (the high seasons for Indian tourism are the last quarter of a
calendar year and the first quarter of the next year). During
Future Demand - Supply Analysis 2013, most destinations showed a decrease in AOR levels over
The not so encouraging performance of hotels across the 2012 with the exception of Bengaluru and Hyderabad. The
country should not be seen as a deterrent for investments but overall decline could be attributed to addition of substantial
just a phase in the business cycle. As opportunities for greenfield inventory, an average decline of 3% in air passengers to these
projects decrease in key markets of Delhi-NCR, Mumbai and cities, slower commercial and investment activity and watchful
Bengaluru, the focus has been shifting towards regional travelers.
epicenters of growth.
KEY OPERATING PARAMETERS
In terms of available inventory, Delhi-NCR, Mumbai and
Bengaluru were the top three cities. 140,000 70%

120,000 60%
Number of Rooms

100,000 50%

Occupancy Rate
SUPPLY CONTRIBUTION 2014
80,000 40%
Ahmedabad 60,000 30%
5% Bengaluru
17% 40,000 20%
Mumbai
15% 20,000 10%

0 0%
Chennai 2013 2014 (F) 2015 (F) 2016 (F) 2017 (F)
8%
Year
Pune
8% Stock Occupancy Rate% Growth Rate in Stock (%)

Hyderabad Source: Cushman & Wakefield Hospitality

8%
Delhi - NCR
Kolkata 33% The silver lining is that the decline in occupancy in most markets
6%
is only partly due to the additions to inventory – if seen from a
Source: Cushman & Wakefield Hospitality demand perspective, i.e., total number of room nights sold by
hotels, the trend is not as negative.

SUPPLY CONTRIBUTION 2018 In 2014, Mumbai is expected to achieve the highest AOR of 61%
among the top eight Indian cities, followed by Kolkata with 56%,
Ahmedabad Ahmedabad and Chennai with 55% each, Delhi-NCR and Pune
4% Bengaluru
17%
with 52% each. Bengaluru is estimated to witness low AOR of
Mumbai 51%, and Hyderabad is set to witness a 50% AOR, at the bottom
18%
of the pile. The top eight cities are expected to witness an
Chennai addition of over 44,000 keys by the end of 2018; Delhi-NCR is
8% expected to lead the pack with 12,397 keys, followed by Mumbai
Pune
7% with 10,069 keys.

Hyderabad Delhi-NCR witnessed a 16.5% y-o-y growth in total organized

8%
Delhi - NCR
supply of over 20,460 keys during 2013. Close to 15 new hotels
Kolkata 32% opened for business in 2013, adding a total of 2,920 keys to
6%
existing room supply. By the end of 2018, it is anticipated that
Source: Cushman & Wakefield Hospitality there will be an addition of over 17,000 keys to this market.

23
October 2014

A Cushman & Wakefield Research Publication

The interesting feature of this market is that hotels seem to be volume in India. While brands at the top-end of the market will
spread rather evenly, with 27% in Delhi, 25% in Noida, 24% in continue to feel the effects of the slow economy for 6-8 months,
Gurgaon, 13% in Greater Noida, 6% in Manesar and 4% in budget and midscale brands are likely to gain greater prominence
Faridabad. by accommodating current market demand.

Mumbai has a significant number of upcoming infrastructure In the medium term, up to 2018, all the top eight cities will
projects, which is expected to enhance connectivity within and to witness increases in AOR. Mumbai is likely to lead in 2018 with
the city. The new airport terminal (T2) inaugurated in February an expected AOR of 62%, followed by Ahmedabad, Pune and
2014 is set to boost passenger capacity by 40 mn over the Chennai at 61% each. Overall, the average AOR is likely to
existing capacity of 30 mn. Additionally, Navi Mumbai is expected increase to 60% across the top eight cities in 2018. Domestic
to see the development of a new airport, which is expected to leisure tourism, which has been a strong source of demand for
augment demand for the location in the long run. Over the last the hospitality sector, may further get a boost with travelers
few years, Mumbai has witnessed addition of significant office choosing domestic destinations over foreign ones in the short
supply, which has further propelled hotel demand. The inventory term due to the large devaluation in the Indian rupee, which has
is expected to double by the end of 2018. made foreign travels and holidays expensive.

Kolkata also has significant upcoming infrastructure such as the Impact On Real Estate
Light Rail Transport System, Mono Rail, Eco-Park, etc. The
The nature of the hospitality industry being a combination of a
expansion of the airport is likely to boost travel within the region,
real estate asset and services provided therein have resulted in a
leading to an increase in hospitality demand. The emergence of
situation wherein there have been mismatches in the valuation of
major suburban areas such as New Town and Rajarhat, together
the properties. Combined with the fact that suitable sites for
with commercial demand growth seen in Bidhan Nagar (Salt
hotel development being fewer in number and higher in value,
Lake) are positives to the new hotels that have opened here. The
this asset class has faced some fundamental issues. The availability
inventory of organized supply is expected to double in Kolkata by
of lower cost and/or higher tenure funding, given the long
2018 end.
gestation of hotel assets has also been a major deterrent to
substantial greenfield development. We anticipate that some of
In the immediate short term, each of the top eight cities will have
these concerns will be addressed in the short to medium term
further addition to inventory along with some restraint from the
through government initiatives, revived interest amongst
impact of seasonality and cautious investor sentiment, until
domestic and foreign investors, and economic and infrastructure
December 2014. This is expected to limit occupancy around 2013
development.
levels.
The overarching concern for the hospitality industry, from a real
Occupancy levels are likely to increase in the coming years with
estate perspective, is the relatively higher costs of assets
increasing foreign tourist arrivals and strong domestic tourist
(greenfield, brownfield and operational), given that most of the
investment in recent years has been made at higher than
OCCUPANCY RATE VS. STOCK sustainable acquisition costs. This has resulted in the relatively
63% 50,000 poor financial performance of the industry in the last five years –
62% there have been few transactions, and most planned
40,000
developments have been delayed.
Occupancy Rate %

61%
No. of Rooms

60% 30,000
With the RBI, SEBI and the banking industry evolving new
59% 20,000 guidelines to resolve the issues around non-performing assets
58% (NPAs), the hospitality industry is also expected to see some
10,000
57% restructuring, which is also important for the cost of
56% 0 development to stabilize and for lucrative transaction
Bengaluru
Ahmedabad

Chennai

Hyderabad

Mumbai

Pune
Kolkata
Delhi-NCR

opportunities to emerge. The new REIT guidelines are also a

positive for the hotel industry, given that the asset class is well
AOR - 2018 (F) Stock - 2018 (F)
suited for long term, annuity-generating investments.
Source: Cushman & Wakefield Hospitality

24
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

important linkages to development, both social and infrastructure,

CONCLUSION the real estate sector is poised for growth from strength to
strength in the next three to five years. It has to be mentioned
After suffering less-than-5 percent growth in the last couple of that after the 2008-2009 global economic crisis, the commercial
years, India is on track to report a significant improvement in its sector has been more or less sluggish after a period of negative
GDP performance, backed by major macroeconomic parameters. sentiment. Recently we have witnessed trends such as several
For instance, the steep inflation figure seems to have been multinational companies, who typically rent, beginning to purchase
arrested despite a weak monsoon season (especially pertaining to their own offices and facilities. Such changes in strategy reflects
food inflation). Not only has this had an impact on interest rates, that global firms are more confident of their India footprint and
but it has also enabled households to save more on basic items. now feel comfortable to have a more rooted existence in the
This is significant given that India suffered a sustained period of market. The residential sector recovery will be largely dependent
increasing interest rates and high expenditure on basic needs. on renewed confidence among buyers who have been fence-
Consumption will increase once the now-anticipated growth sitters so far. We expect that early in 2015, the RBI will begin to
actually kicks in, interest rates will tangibly bend southwards and ease interest rates, which will lure consumers to turn a corner.
job growth will yield statistical result. What must be underlined is
that the green shoots have started emerging and will pave the India's GDP grew by 5.7% in Q1 2014-15 versus 4.6% in the
way for major overhaul in consumer sentiment. previous quarter. This was India's fastest quarterly growth in two
years. More importantly, the manufacturing sector bounced back
Perhaps it can be said that India is at an inflection point, wherein from a contraction of 1.4% in Q4 2013 to an expansion of 3.5%.
both the short term and long term focus are being re-invented The optimism in these numbers will be made sustainable by
after a long period of sluggishness. The government formation in initiatives such as “Make In India,” meant to make India the next
2014 by itself signaled to the world that a majority party will be global manufacturing hub. In the roadmap of growth and
at the center; a breakdown of the coalition form of government development, we expect that the introduction of GST will ring in
also removes obstructions and aids active reforms. Additionally, a more mature tax regime, which will have positive ripple effects
the present government's focus on development augurs well for on all sectors. Overall, we believe India is keen on a course
business sentiments and by extension, investments. For instance, correction mode; policies are being pushed, implementation is
in the past couple of months, norms for FDI in real estate were assuming a focus and a strong groundwork for investments and
relaxed and REITs regulation was notified; these are measures financial inclusion is being laid. Hence, last year's cautious
that have long term implications for the Indian market. The optimism has adopted a more certain, positive overtone and we
government's plan to build and develop 100 smart cities will also expect that India will grow from strength to strength from
boost now-peripheral locations, mobilize adjoining communities, hereon.
create jobs and create real estate demand. We estimate that with

25
October 2014

A Cushman & Wakefield Research Publication

Q1, Q2, Q3 or Q4: first, second, third or fourth quarter of a

DEFINITIONS AND NOTES year
QE: Quantitative Easing
AOR: Average Occupancy Rate
RBI: Reserve Bank of India - India's Central Bank
BFSI: Banking, Financial Services and Insurance
REITs: Real Estate Investment Trusts
bn: billion
R&R: rehabilitation and resettlement
CAD: Current Account Deficit
SEBI: Security and Exchange Board of India
Capital values: Quoted base price per square feet for category
SEZs: Special Economic Zones
of residential property under consideration. It does not include
sf: square feet
other charges such as Preferential Location Charges, External
Development Charges, Internal Development Charges, etc. sq. m.: square metres
Construction Development: Townships, housing, built-up Top 8 Indian cities: Ahmedabad, Bengaluru, Chennai, Delhi-
infrastructure and construction-development projects (which NCR, Hyderabad, Kolkata, Mumbai and Pune
would include, but not be restricted to, housing, commercial TNC: Transnational Corporations
premises, hotels, resorts, hospitals, educational institutions, USD: United States Dollars
recreational facilities, city and regional level infrastructure)
Vacancy Rate: The total availability of space as a proportion of
CPI: Consumer Price Index the existing inventory
Deferred Supply: under construction projects whose delivery Weighted average rentals: Quoted rentals of commercial
timelines have been postponed to office spaces, calculated as a proportion of availabilities/ vacancies
DMIC: Delhi-Mumbai Industrial Corridor in these buildings
EWS: Economically Weaker Section y-o-y: year-on-year
FDI: Foreign Direct Investment
FY: Financial Year
GDP: Gross Domestic Product
GST: Goods and Services Tax
H1 or H2: first or second half of a year
HIG: High Income Group
INR: Indian rupee
Inventory / Stock: The total available constructed space in a
micro market / city in square feet
InvITs: Infrastructure Investment Trusts
IT-BPM: Information Technology and Business Process
Management
LIG: Low Income Group
MIG: Mid Income Group
mn: million
msf: million square feet
NDA: National Democratic Alliance
Net absorption: Incremental new space take-up of commercial
office spaces
PE: Private equity

26
INDIAN REAL ESTATE:
POISED FOR HIGHER
GROWTH

SOURCES AND REFERENCES

Central Statistics Organization
Cushman & Wakefield Hospitality
Cushman & Wakefield Research
Deloitte University Press
Department of Industrial Policy and Promotion (DIPP)
Grant Thornton
International Monetary Fund (IMF)
Media Articles and Journals
Ministry of Housing and Urban Poverty Alleviation (MHUPA)
Ministry of Statistics and Programme Implementation's (MOSPI)
Real Capital Analytics (RCA)
Reserve Bank of India (RBI)
Roubini Global Economics
Scotiabank
The World Bank
United Nations
United Nations Conference on Trade and Development
(UNCTAD)

27
October 2014

A Cushman & Wakefield Research Publication

Cushman & Wakefield is the world's largest privately-held For more information on Investment Services offered by
Cushman & Wakefield India, contact:
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in many of the most significant property leases, sales and For more information about C&W Research, contact:
Siddhart Goel
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Authors of the reports:
firm has nearly $4 billion in assets under management globally.
Siddhart Goel Megha Maan
Cushman & Wakefield established operations in India in 1997 and Director - India, Research Regional Manager, Research
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granted permission by the Government of India to operate as a Virendra Joshi Ruchi Bhatia
wholly owned subsidiary. We are a strong team of over 2,000 Senior Manager, Research Manager, Hospitality Services
[email protected] [email protected]
employees, operating across New Delhi, Gurgaon, Mumbai, Pune,
Priyanka Ghosh Divya Grover
Bengaluru, Chennai, Hyderabad, Kolkata and Ahmedabad. In
Analyst, Research Deputy Manager, Research
addition, we service over 90 other cities such as Ahmedabad, [email protected] [email protected]
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A recognized leader in local and global real estate research, the
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28
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