Supply has been smartly constrained in Chennai over the past two quarters while demand in 2Q CY10 was the highest since 3Q CY08. As a result, rents have stabilised although since upcoming supply is large, upsides to rents may still be further away. Due to the low supply, vacancies have shown a small correction and now stand at 22%, with most vacancies on the OMR and GST Road locations. Chennai could benefit from some increased IT demand in CY10 if the political situation in Andhra Pradesh (Hyderabad) does not improve.
Supply in Hyderabad continues to exceed demand leading to very high vacancies of 29%. Rents have not yet stabilised but have fallen 28% from the peak. We expect supply to continue and believe rentals could remain under pressure for two more quarters. Strong demand is unlikely until the political uncertainty in the state eases.
Demand has picked up in Pune over the past two quarters while supply has been constrained. Demand is now the highest in the past eight quarters while supply is the
lowest. Demand is picking up in the eastern part of the city rather than the more traditional western suburbs due to better social infrastructure. Following better demand and low supply, rents have started moving up while vacancies have declined marginally. However, supply pressure is expected to restart in 2H CY10.
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