Office Space Recovery Gaining Traction

Leasing activity picked up during the quarter with 7.3msf of office space being absorbed in 2Q10 vs. 6.3msf in 1Q10. 2010 is expected to witness 52msf of office supply as against estimates absorption of 29msf. This will further push the vacancy levels higher to over 20% from 18% currently.

Majority of the supply expected to be added in 2010/2011 is at advanced stages of construction.

Delhi NCR2Q10 witnessed increased level of transaction activity especially in Gurgaon & Noida given availability of quality supply at affordable rentals and flexible lease terms. Overall 2Q10 absorption stood at 2.2msf (up 126% Q/Q) with SEZ accounting for 50% of the total.

Supply for 2Q10 stood at 1.5msf (vs.0.8msf in 4Q) on account of completion of significant projects during the quarter. The entire supply was concentrated in the suburban locations. 3.3msf of supply is expected to be added in 3Q.

Rentals remained largely stable across most markets. C&W expects rentals across majority of the markets to strengthen in the medium term.

Mumabi - Mumbai witnessed absorption of 1.7msf in 2Q10 with fresh leasing picking up meaningfully during the quarter. SEZs in Thane Belapur accounted for >20% of total absorption for the quarter.

Overall vacancy rate remained stable at 14-15% in 2Q 2010 as supply continues to outstrip demand especially in the Andheri, Malad and Thane Belapur micro markets. CBD vacancy levels however increased on account of tenant movement to new buildings in suburban locations (Lower Parel/BKC).

Rentals remained largely stable across most micro markets and the trend is likely to continue given sizeable supply addition expected in suburban Mumbai (7msf primarily coming in Andheri, Lower Parel).

Bangalore2Q10 witnessed absorption of 2.4msf primarily coming from earlier pre - commitments in buildings which were delivered during the quarter. Avg. transaction sizes also increased (>70,000sq ft) as compared to last quarter.

Bangalore witnessed 6.2msf of completion in 2Q10 with Whitefield accounting for ~77% of the total supply. 3Q is expected to witness 4.2msf of office supply.

Rentals have largely remained stable over the last quarter with the exception of CBD/off CBD location given limited supply addition in the micro market. C&W expects the rentals to start strengthening in select micro markets over the next 2-3 quarters.