>UNITECH (NOMURA)

■ Early signs of life in the office market
We attended Unitech Corporate Park’s (UCP LN) analyst conference call held on 6 Jan 2010. UCP management seemed hopeful of an improving leasing environment as it has seen leasing inquiries picking up since Sep 2009. This is what other developers have also indicated
over the past two months.

■ Actual leasing though remains subdued
UCP has managed to lease only an incremental 0.33mn sqft of office space in 1H FY10, while area under letters of intent/agreement to lease has moved up by about 0.2mn sqft. This has taken the total rental generating area to 1mn sqft, while total area under letters of intent/agreement to lease is 2mn sqft.

Office demand set to improve

■ Construction likely to follow demand
We believe that further construction in UCP properties is only likely to follow firm inquiries for leasing. Chairman Mr. Atul Kapur commented, “We expect the portfolio will continue to benefit from our strategic decision to phase the construction programme in line with both
demand and economic conditions.” This shows that developers are looking to control their future supply to reduce oversupply.

■ Valuations should stabilise or improve from this point
With an improved leasing environment and stabilised rentals, we expect cap rates to initially remain steady and then improve over the course of the year. This should mean that the NAV of UCP’s portfolio of £518mn as calculated by Knight Frank is close to its bottom.

To read the full report: UNITECH