Hyderabad: In 2016, office market in the country witnessed an all-time high absorption of 43 million sq. ft., registering a growth of 9 per cent on a year-on-year basis. Supply addition during the year touched 35 million sq. ft. with India’s office stock reaching a milestone of over 0.5 billion sq. ft. (as of Q4 2016) – higher than several East Asian economies. One of the key cities contributing to the growth of the office market in the country was the city of Hyderabad. CBRE estimates that the city will add 20 million sq ft in next three years while the last two.
In the last one decade, the IT/ITeS boom, along with the advent of HITEC City and its surrounding locations, has transformed Hyderabad into one of the preferred IT destinations for multinational companies and research and development centres. With the announcement of the new Telangana State, the office market has seen a revival in terms of occupier demand, on the back of strong leasing activity, the timely completion of new commercial developments and investment flows across prominent suburban and peripheral markets.
According to Ram Chandnani, Managing Director, Advisory & Transaction Services, CBRE South Asia, “Over 2015 and 2016, the city witnessed the addition of about 6 million sq. ft. of office space each year. In fact, during 2016, the city witnessed a steep rise in occupier demand as well, with absorption more than doubling to cross 6 million sq. ft. At the same time, vacancy levels were on the decline as the city provided quality space at affordable rentals and better infrastructure, when compared to other IT dominated cities. As of Q4, 2016, the city’s office stock stands at close to 50 million sq. ft.”
During the year, the most significant leasing activity was witnessed in the IT Corridor (Madhapur, Kondapur, Raidurg, Hitec City and Gachibowli) accounting for 75 per cent of the overall leasing in the city. This micro-market also witnessed continuous rental appreciation over the past two years, due to sustained occupier interest coupled with low vacancy levels. Hyderabad’s Central Business District (CBD) witnessed an increase in transaction activity during the year, largely driven by demand from corporate occupiers in the IT/ ITeS segment. Most of the deal closures were in second generation space.
Backed by robust demand, Extended IT Corridor (IT and SEZ segments) registered a 24-30 per cent rental growth on year-on-year basis. Both IT and Extended IT Corridors (located in Western Hyderabad) remain the most sought after destinations for corporate occupiers looking for expansion owning to the right mix of talent, efficient transportation network and proximity to organised retail. Commercial office demand is expected to be robust in the coming year. The recent entry of global technology majors into the city is expected to provide a further boost to the number of leasing transactions. The office space take-up is likely to be driven by the consolidation and expansion of IT majors.
The IT/ITeS sector is expected to drive demand for office space, followed by the banking / financial services, pharmaceuticals and outsourcing sectors. Emerging sectors include e-commerce and bio-technology are also expected to contribute to office demand.
“More than 20 million sq. ft. of new office supply is expected to enter the market in the next three years, mostly in suburban and peripheral locations of the city (IT and the Extended IT Corridors). This new supply – mainly consisting of high quality investment-grade projects, is expected to cater to the growing demand for office space in the coming years. The current demand and supply dynamics are expected to result in rental growth, particularly in core markets such as the IT Corridor. This growth is likely to be sustained over the next two to three years, following which it may begin to taper,” he added.
The IT Corridor is expected to lead commercial leasing activity in Hyderabad followed by Extended IT Corridor. Going forward, the various infrastructure initiatives undertaken by the state Government are expected to provide a further boost to the real estate market in this city.