Nomura Research has found in a study of six Indian cities that the demand for office space remains stable, but it is not enough to reduce vacancy which remains high
Construction of new office space is expected to slow down further in the July-September quarter, with fresh starts likely only in some of the southern cities where there are signs of a pick-up in demand after a steep decline in new supply in the first half of the year, according to Nomura Research.
Demand has been flat and developers are struggling to get funds which have become more expensive. But lower supply is also pushing up prices and rentals, Nomura has found in a study of office space demand and supply in six Indian cities published this week.
There has been much concern around the performance of the realty sector, which has suffered the most on the stock market this year. The Moneylife Real Estate index has fallen 24% since 1 January 2011, as compared to a 12% drop in the benchmark Sensex during this period. The index includes 31 companies.
Perhaps the only exception is the information technology (IT) business which has been increasing its headcount and as a result of which fresh absorption of office space has hit its highest in three years.
Fresh demand from IT and IT enabled services is outstripping new supply in Bangalore where rentals are up 6%-7%. So vacancy is under control although supply under construction is still low.
Hyderabad, which has been through political turmoil recently, is also seeing a revival in demand from IT/ITES and some non-IT sectors. This has resulted in higher absorption and a sharp drop in vacancy from a peak of 29% in April-June last year to 13% in the corresponding period this year.
In Chennai limited supply addition coupled with a recovery in demand-the highest seen in two years-has resulted in a hardening of rentals. While Nomura does not expect a further upside for rentals, lower new supply in the face of funding problems could see vacancy levels come down rapidly and rents harden somewhat.
Mumbai, the National Capital Region and Pune are a different story, where rebalancing of the large oversupply is likely to take some more time.
In Mumbai, vacancy levels have risen to 22% from 20% in the April-June 2011 quarter and this has kept rents in check. Office space is still under construction in Mumbai and will likely take five-six years to be absorbed at the current run-rate. It is believed that Mumbai is likely to witness a fresh bout of rental correction if developers do not go for a slowdown on their plans.
In the National Capital Region, Nomura Research says demand for office space improved quarter-on-quarter, but with the supply momentum staying the same, rents have remained flat. However, continued supply addition in Noida has resulted in a sharp increase in vacancy there from 13% in early 2008 to 27% in the April-June 2011 quarter. In Gurgaon the rise has been relatively lower as it is still the preferred tenant market.
In Pune, which likely Bangalore and Hyderabad derives a large part of its demand from IT/ITES companies, has not seen any pick-up in demand in the last quarter. With demand remaining moderate through the past three years, vacancy levels have shot up to a record 29% and in the suburban and peripheral areas it is even higher.
Overall, based on these numbers, it appears that at the current demand rate, vacancy levels are likely to remain at similar highs through this year. Only in 2012, as supply addition drops and there is a pick-up in demand, would there be any likelihood of vacancy dropping and a meaningful recovery in rentals.
The slowdown in developed nations and weak domestic data has kept investor sentiment low
Indian stocks are likely to see a gap-down opening as nations try to grapple with economic issues. With most domestic banks hiking their interest rates following the Reserve Bank of India’s steep in its key rates late last month, corporates are going slow on their expansion plans.
On the global front, despite the US Senate approving a deal to raise the debt ceiling to avert a debt default Wall Street closed down overnight on lower-than-expected consumer data for June. Investors are seen opting for commodities like gold as a safe haven bet, pushing the precious metal by 2% on Tuesday to another all-time high. Asian markets were in the red in early trade on Wednesday as economic concerns overshadowed the last-minute US debt deal. Fresh concerns in Europe also weighed on the sentiments. The SGX Nifty was 85.50 points down at 5,382 compared to its previous close of 5,467.50.
On Monday, we had mentioned that a one-day rise shouldn't be taken as the end of the decline. Yesterday, the Nifty lost 60 points, which is the maximum the benchmark has lost in a single day over the past five trading sessions. And both the Sensex and the Nifty closed at their lowest level in the last 28 days as the market fell on negative news across the globe.
For the indices to see some strength, it would require some real positive changes in the fundamentals. We can expect the Nifty to show a rising trend if it closes above 5,570 in the coming days.
Earlier, the market opened lower on concerns over the slowdown in domestic growth, following mixed announcements yesterday. The Nifty resumed trade at 5,493, down 24 points, and the Sensex opened 30 points lower at 18,284. While the Sensex opening level was its high for the day, the Nifty's 5,496 immediately after the opening was its high point.
The indices were range-bound in subsequent trade and a lower opening on key European bourses pushed the market further southwards in afternoon trade. The market fell to its intra-day low in the post-noon session, as the Nifty touched 5,434 and the Sensex struggled at 18,038.
The market made a half-hearted attempt to recover, but selling pressure saw the indices close in the red. The Nifty closed 60 points lower at 5,457 and the Sensex lost 204 points to close at 18,110.
Markets in the US fell on Tuesday despite president Barack Obama signing into law a bill that raises the nation’s debt ceiling and cuts the budget deficit by at least $2.1 trillion over the next decade. Investors are now turning their attention on the nation’s economic growth.
Meanwhile, the Commerce Department said on Tuesday consumer spending slipped 0.2% in June, the first drop since September 2009, after edging up 0.1% in May. Also, data showed that the Thomson Reuters/University of Michigan final index of consumer sentiment fell in July to the weakest since March 2009.
The Dow tumbled 265.87 points (2.19%) to 11,866.62. It was the blue-chip index's eighth consecutive decline marks its longest losing streak since October 2008. The S&P 500 fell 32.89 points (2.56%) to 1,254.05, marking its seventh straight loss. The Nasdaq declined 75.37 points (2.75%) to 2,669.24, its biggest percentage drop since last August.
Gold jumped 2.6% on Tuesday, its biggest gain since early November just after the US Federal Reserve launched a second round of government debt purchases, or quantitative easing.
Oil prices fell on Tuesday as more weak U.S. economic data fuelled concerns about a fall in demand. US September crude fell $1.10 to settle at $93.79 a barrel, the weakest close since 28th June. ICE Brent crude for September fell 35 cents to settle at $116.46 a barrel, having traded from $115.53 to $118.40.
Markets in Asia were down in early trade on Tuesday as economic concerns took centre-stage. Weak consumer data from the US put pressure on export-driven economies in the region. Fresh concerns about the debt crisis in Europe also weighed on investors.
The Shanghai Composite declined 0.91%, the Hang Seng tumbled 2.37%, the KLSE Composite declined 0.85%, the Nikkei 225 plunged 2.21%, the Straits Times sank 1.70%, the Seoul Composite tanked 2.75% and the Taiwan Weighted was 1.97% lower.
Back home, the National Stock Exchange (NSE) is likely to launch futures contracts on benchmark US indices—S&P 500 and Dow Jones Industrial Average (DJIA)—in the near future, a senior exchange official said yesterday.
United Forum of Bank Unions announces strike as conciliation talks fail. Protest will involve employees of all public and private banks
About 10 lakh employees of public sector, private sector, foreign, co-operative and rural banks will go on strike on 5th August to protest against a range of issues from privatisation of nationalised banks, disinvestment in public sector banks and mergers and acquisitions in the banking sector, to the outsourcing of routine activities.
The strike has been called by the United Forum of Bank Unions (UFBU), an umbrella organisation of nine bank unions, after conciliation talks at the office of the chief labour commissioner failed today. There will be another round of talks on Wednesday. ATMs could also be affected, bringing all banking activities across the country to a complete halt.
“We are opposing banking sector reforms. This is not for bank employees alone, but for the sake of the country,” Ravindra Shetty, convener, UFBU, said at a news conference in Mumbai today.
The issues are listed in a 21-point charter that was drafted at an all-India convention in the national capital in May. The issues of all sections of bank employees and officers, even retired employees, are contained in the charter.
The strike action appears to have been prompted by the plan of the government to table bills in the current session of parliament to amend the Banking Regulations Act and Banking Companies (Acquisition and Transfer of Undertakings) Act.
“Through these amendments, banks will be exempted from competition and any merger of banks will become easier for the government,” Mr Shetty said. The charter of issues has been put before the Indian Banks Association (IBA).
Mr Shetty criticised the government’s move to allow private investors (corporates) to invest more than 5% in private sector banks, saying, “There is a move to remove the 10% cap of voting rights in private sector banks. They are giving the Reserve Bank of India (RBI) sweeping powers to supersede the codes of banks and appoint administrators to run the banking industry.”
He said UFBU is opposed to such reforms and would struggle to protect and strengthen public sector banks. The union are demanding the expansion of public sector banks into villages, in line with the announcement the finance minister made in the Union Budget.
Mr Shetty referred to the fact that Indian banks had withstood the global financial crisis of 2008. He said that even the government had acknowledged that Indian banks were able to tide over the crisis because of “our public character”, and today the same government was looking to change the character of the banking industry.
The unions have also opposed the outsourcing and contractualisation of permanent bank jobs. While they had agreed to certain specialised IT-related being outsourced, they say that the government was trying to bring in various non-core jobs into the ambit of outsourcing. “The government wants to bring in business correspondents and facilitators that will take away the jobs of citizens who are seeking employment in banks,” Mr Shetty said.
He also referred to the attempt by the government to implement some clauses of the Khandelwal Committee report through the backdoor
Urging the government to revive the banking services recruitment board, as nearly five lakh employees will retire in the next five years, Milind Nadkarni, president of the National Confederation of Bank Employees, said, “Banks are going for clerical recruitment to campuses. We object to this as every boy and girl with the minimum required qualification should be allowed to apply for recruitment.”
Lalita Joshi, joint secetary of the All India Bank Employees Association, said that the families of many employees who have passed away were struggling in these days of high inflation and many of them were in a poor condition, but no effort had been made to employ any of the family members on compassionate grounds.
Mr Shetty hoped that the government would lend a more sympathetic ear to these issues and not push the unions into an indefinite strike.