Hyderabad: Hyderabad is showing significant signs of growth in the real estate sector. The city has witnessed a healthy 15 per cent jump in office space transactions in the first half of 2018 (January-June) at 2.69 million sq ft compared to 2.33 million sq ft registered in the corresponding period of the previous year. Office rentals went up four to eight per cent over the last year at an average of Rs 53 per sq ft now while touching Rs 65 per sq ft levels in certain key locations, according to a latest national report by real estate consultancy Knight Frank.
Hyderabad witnessed the highest office space transaction in the first half of the year in 2016 when 2.75 mn sq ft of office space was transacted in the city. There are all indications that support the possibility of 2018 turning out to be another good year for the office market, as office space transactions typically gather further steam in the second half of the year.
Considering that Hyderabad is slowly turning out to be one of the preferred cities, for office space in the country by occupiers, the same trend is likely to continue in the second half of 2018. Consistently it has been evident in the last few years, the report points out, new completions are unable to keep pace with the office space demand. During H1 2018, 1.73 mn sq ft of office supply was witnessed, which is 14 per cent less than the office space that was added to the stock, in H1 2017.
There has also been a marginal increase in vacancy, in H1 2018 compared to H1 2017 but it still remains in the low single digits. Vacancy levels in the city have moved up marginally from 5.16 per cent in H1 2017 to 6.76 per cent in the H1 2018. Low vacancy has been one of the biggest challenges for Hyderabad as occupier interest continues to be on the rise and there is not enough supply to meet the same. Vacancy levels in key micro-markets such as Madhapur, HITEC City, Gachibowli and Nanakramguda area as low as 2-4 per cent.
Another tangible trend in Hyderabad is that companies have now started to develop their own campus. The IT/ITeS sector has traditionally dominated the office transaction pie in Hyderabad. However, in H1 2018, the share of the IT/ITeS sector has fallen to 36 per cent. This is largely due to the unavailability of good quality office space with large floor-plates, preferred by the companies.
In H1 2018, the largest amount of space was taken up by companies from the other services sector, picking up 43 per cent of the office space transacted in H1 2018, which is significantly higher than in H1 2017, when their share stood at just 23 per cent. Even within this particular category, 25 per cent space was taken up by companies in the co-working space.
After the other services sector, the manufacturing sector has been the other major gainer in H1 2018, whose share in the total transacted office space stood at 15 per cent, compared to 5 per cent in H1 2017. The share of banking, financial services and insurance (BFSI) companies has fallen in H1 2018 to 7 per cent compared to 21% in H1 2017. The average deal size has been 22,377 sq ft, which is 20 per cent higher than in H1 2017.
The H1 2018 period witnessed 120 deals, which is marginally lower than H1 2017, which had recorded 126 deals. The marginal fall in the number of deals and the rise in average deal size can be attributed to companies such as Amazon, S&P Global and ShoreIT taking up large amount of space in the city.
Even though the share of the suburban business district (SBD), in the total office space transacted has fallen by 19 per cent compared to H1 2017, it continues to garner a major share of office space. Going forward it is expected that office space will further expand in the west, thereby increasing the attractiveness of micro-markets such as Kokapet, Narsingi and Puppalguda. In fact, companies have already started moving their offices to Kokapet.
Lack of vacant office stock coupled with steady demand has pushed the weighted average rentals in the office market to 53 per sq ft per month at the end of H1 2018, a growth of 4 per cent year-on- year (YoY). H1 2018 witnessed rentals move up across micro markets compared to H1 2017. The upward movement in rentals can be gauged from the fact that rentals in Madhapur witnessed few transactions at 65 per sq ft per month. Rentals in Gachibowli too reached 65 per sq ft per month. Elsewhere, in Nanakramguda there was a transaction at 65 per sq ft per month.
The report pointed out that the worst seems to be behind for Hyderabad, backed by new launches of residential units. The State appointed the RERA Appellate Tribunal and its Authority. This gave developers scope to start work on the projects, which had all the required approvals, except the RERA registration. The RERA website for Telangana is expected to be up and running from August 1, 2018.
New launches in H1 2018 witnessed a major spike compared to the same period last year. New launches in H1 2018 were 44 per cent higher than in H1 2017. West Hyderabad continued to see momentum. Of the total launches, 71 per cent took place in west Hyderabad. Some of the micro-markets which were active during H1 2018 are Nallagandla, Narsingi, Kokapet and Serilingampally. Ameerpet in central Hyderabad also witnessed a couple of launches.
The number of units launched has been under 4,000 units. A noticeable trend with regards to new launches is that the total launches close to 47 per cent of the units launched were in the price bracket of Rs 75 lakhs-1 crore. Further, during H1 2018 none of the housing units launched were priced below Rs 25 lakhs. A few units catering largely to the luxury segment were also launched in the western part of the city. About 3 per cent of the units launched were priced between Rs 2 crore-4 crore.
Sales in H1 2018 were 5 per cent up compared to H1 2017. The report said there was a clear preference, among homebuyers, for ready-to-move-in units or those housing units where the possession was within the next six months.
Despite the setback to new launches in 2017, sales have largely been steady in the city. Post-bifurcation of the State, sales in Hyderabad, have for the first time crossed 8,000 units. H1 2018 witnessed sales of 8,313 units, which is 5 per cent more than H1 2017. The steady sales of residential units had a direct bearing on the good performance of the commercial space in the city.
Of the total sales in H1 2018, 69 per cent took place in western Hyderabad. West Hyderabad’s proximity to office locations such as Financial District, Madhapur, Gachibowli and Kondapur have been the major pull factors for homebuyers, Knight Frank report showed.
The share of sales of east and north Hyderabad, which are more affordable markets, has remained steady in H1 2018 compared to H1 2017. The share of south Hyderabad has however marginally increased to 8 per cent due to the availability of housing units at attractive price points.
Due to a clear mismatch between demand and supply of housing units, in the city, prices have started to firm up. In H1 2018, prices moved up by 8 per cent compared to H1 2017. Ready-to move in homes continue to command a premium and so do housing units at a good location from reputed developers. The mismatch created in demand and supply, because of new launches, is further expected to push up prices in Hyderabad in the coming days.