Bengaluru may lose office market share to Hyderabad

Bengaluru will require about 35-40 million sq ft (3.2-3.7 million sq m) of new space to sustain the upcoming demand. However, the supply pipeline is projected at 27.5 million sq ft (2.5 million sq m).

By Author  |  Published: 6th Mar 2018  6:01 pmUpdated: 6th Mar 2018  6:27 pm
Representational Image.

Hyderabad: Bengaluru’s office market dynamics are expected to change over time in terms of location preferences, workspace design and occupier profile. As per real estate services company Colliers Research, the fast-growing neighbour, Hyderabad can no longer be ignored and Bengaluru may lose some market share in office leasing, if Hyderabad maintains the momentum of new supply additions over the next three years.

In the past three years, Hyderabad has jumped from sixth to third position (with Bengaluru and National Capital Region taking the two spots) by gross absorption among the top seven Indian cities. In 2017, with 5.8 million sq ft (0.5 million sq m) of gross absorption, Hyderabad accounted for 14 per cent of the total office absorption, exceeding Mumbai, the financial capital of India. Bengaluru occupies 36 per cent of the market in terms of gross absorption.

“Bengaluru accounts for about 25 per cent of India’s total Grade A office inventory. However, this growth has come at the cost of unplanned urbanisation and created massive pressure on existing infrastructure. Although, Bengaluru’s office market landscape is studded with the presence of major technology companies and startups, the rising rents, supply crunch, technology disruption, the emergence of flexible office space and infrastructure will remain key concerns in coming years” says Ritesh Sachdev, senior executive director, Occupier Services at Colliers International India.

“Bengaluru has maintained its leadership position by taking a lion’s share of about one-third of total India gross office absorption over the past five years. However, looking at the growth pattern of Hyderabad, we think Bengaluru may lose some of its share to its fast-emerging neighbour. As per Colliers research, the factors working in favour of Hyderabad include cheaper rents, occupier-friendly State government policies and robust supply pipeline,” he added.

The average Grade A rent per sq ft per month in Hyderabad Rs 43 is about 40 per cent cheaper than Bengaluru’s average Grade A rent of Rs 72. Colliers forecasts that average rents in Bengaluru will rise by 10-15 per cent by 2020, whereas Hyderabad’s rents will increase by a mere 2-5 per cent over the next three years. Thus, Hyderabad is ought to attract cost-conscious occupiers.

Bengaluru will require about 35-40 million sq ft (3.2-3.7 million sq m) of new space to sustain the upcoming demand. However, the supply pipeline is projected at 27.5 million sq ft (2.5 million sq m). Hitec city, Financial District, Kondapur, Raidurg, Gachibowli are witnessing upcoming construction that is likely to increase the total office stock in the city.

It is forecast that demand is likely to outstrip supply in the next three years in Bengaluru which may force some companies to consider Hyderabad. However, this will depend on the timely completion of projects under construction in Hyderabad, which itself has single digit vacancy levels of 6 per cent. Based on estimates, Hyderabad has about 30 million sq ft (2.79 million sq m) of new supply pipeline scheduled for completion by 2020.

“We cannot rule out the possibility of a shift of occupier interest towards other neighbouring markets. Hyderabad is likely to be the preferred option among occupiers due to the uncertain political environment in Chennai and talent pool crunch in Tier II cities,” he said.