Hyderabad’s office space growth on fast track

Next three years could add 20 million sq ft of new office supply.

By   |  Published: 27th Jun 2017  11:26 pmUpdated: 27th Jun 2017  11:27 pm
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Hyderabad: Hyderabad is becoming a major destination for technology majors. And developers are gearing up to create adequate office space to meet the growing demand. Office absorption rates in the city had been high at about 6.5 million sq ft in 2016 and this momentum is set to continue, industry experts say.

With the lowest office rentals across top markets in India, corporates particularly in the technology space are aggressively looking at Hyderabad as part of their expansion strategy.

During 2016, the city witnessed a steep rise in occupier demand as well. 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 per the property consultancy firm CBRE’s estimates, in 2016, Hyderabad witnessed strong office leasing, registering a 109 per cent y-o-y growth. In the January to March 2017 quarter, the city witnessed an uptake of over 1.3 mn sq ft of office space, indicating that the upcoming quarters could be even more positive for the city’s office space segment.

“With the pro-active approach of the State government, Hyderabad could attract investments and also send positive signals to multinational corporations on the suitable ecosystem it provides. The city is today among the top cities in the country for realty investments. The momentum is going to continue as the government is taking steps to improve the infrastructure and connectivity in and around the city, aiming to making it the best city for corporates to set up base,” Ram Chandnani, MD, Advisory & Transaction Services, India, CBRE South Asia told Telangana Today.

He adds, “We expect a lot more growth in Hyderabad in the coming years. The city has seen growth in several industries such as technology, banking and financial services, engineering, manufacturing, pharmaceuticals and healthcare which has resulted in higher employment generation. IT and ITeS still rule the office space absorption.”

Five of the world’s top technology companies have started or are in the process of setting up a significant presence in the city.

Sandip Patnaik, MD-Hyderabad, JLL India said that Hyderabad real estate which was down from the first quarter of 2009 till the last quarter of 2015 bounced back in 2015-16, with a record commercial leasing of 6.50 million sq ft in 2016.

“With 16.81 mn sft area of office space transacted in the country in 2016, it translates to a 10 per cent increase (y-o-y). Hyderabad and Bengaluru together recorded more than 50 per cent of this total pan-India IT space take-up,” says, Ramesh Nair, CEO & country head, JLL India.

The numbers show, during 2016, 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 and is expected to attract a significant pie in the coming years as well.

On the future growth prospects, Ram Chandnani says, “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. The current demand and supply dynamics are expected to result in rental growth, particularly in core markets such as the IT Corridor.”

Telangana government is ensuring transparency in the land allotments and auctions. Hyderabad had bad experience with land records, allotments and registrations before this government came in. The present government has ensured transparency in auctions. A lot of MNCs and NRIs have invested in Hyderabad in the last two years with the trust generated by the present government. The State is actively seeking to resolve the old issues that concern the previous governments, said, C Shekar Reddy, former national president, Credai.