Re-emergence of Hyderabad, India’s Silicon Valley

In first quarter of 2019, Hyderabad has overtaken Bengaluru for the first time to be the dominant office market driving quarterly space take-up, on the back of culmination of several pre-commitments

By   |  Gipson Paul  |  Published: 20th Jul 2019  12:01 amUpdated: 20th Jul 2019  12:42 am
Hyderabad is among the top-10 fastest growing cities in the world, according to WEF.

Hyderabad: Hyderabad, earlier known as India’s Silicon Valley, was one of the first cities to witness the growth of the Indian IT/ITeS sector. It began with the establishment of the Hyderabad Information Technology and Engineering Consultancy City (HITEC City), which provided a mix of Built-to-Suit (BTS) and Multi-Tenanted Space (MTS) facilities for IT occupiers followed by the establishment of the Financial District, a dedicated industrial park for the IT/ITeS and financial firms.

Gradually in the first quarter of 2019, Hyderabad has overtaken Bengaluru for the first time to be the dominant office market driving quarterly space take-up, on the back of culmination of several pre-commitments. The gross leasing volume in India touched 12.8 million sq. ft. in Q1 2019, recording a growth of 3% on a quarterly basis with Hyderabad, Bengaluru, Mumbai and Delhi-NCR accounting for more than 75% of the leasing activity, reiterating
the potential for growth.

Over the past decade, the IT/ITeS boom has transformed Hyderabad into one of the preferred IT destinations for multinational companies and research and development centres.

Hyderabad has kick-started occupier demand on the back of strong leasing activity, timely completion of new commercial developments and investment flows across prominent suburban and peripheral markets. The resurgence of investment activity coupled with new government initiatives has prompted the revival in of leasing activity over the past couple of years. The year 2018 witnessed the addition of approximately 3.5 million sq ft of new office supply, the second highest total among India’s main southern cities. The new supply was mainly concentrated in Hyderabad’s IT and Extended Corridors in the form of IT and SEZ developments. Also, unsold inventory levels have been on the decline as the city provides quality space at affordable rentals and better infrastructure, when compared to other IT dominated cities.

The city’s overall commercial stock stood at approximately 61 million sq. ft. as of 2018, which is lowest among the southern commercial hubs of Bengaluru (143 million sqft) and Chennai (63 million sqft), indicating the city’s strong development potential.

Hyderabad is among the top-10 fastest growing cities in the world, according to the World Economic Forum (WEF). Interestingly, all 10 of the fastest-growing cities in the world are in India. And, going by Gross Domestic Product (GDP) growth, this is likely to be the case till 2035, says research institute Oxford Economics.

Hyderabad is witnessing renewed interest for Office, Residential, Retail, Industrial & Logistics space in recent years and continues to be the most affordable market for residential buyers, especially in the premium/luxury and high end/mid-end segments. Apart from a robust commercial and industrial landscape, the city’s retail segment has also witnessed enhanced activity off late with organized retail stock to touch 10 million sqft by 2019.

The resurgence of investment activity coupled has prompted the revival of leasing activity over the past couple of years. There is a lot going in favour of Telangana’s capital city, including ease of business, quick project approvals, proactive governance and good infrastructure, giving it a clear edge over many others.

Hyderabad is expected to complete about 26 million sqft of commercial office space between 2019 and 2020, increasing its stock by 43% by the end of 2020. Additionally, the city has witnessed significant infrastructure developments including the Hyderabad Metro, multi-level flyovers, electronic manufacturing clusters and an Integrated Pharma city over the last two years.

Both Western and Central Hyderabad remain the most sought-after destinations for corporate occupiers looking for expansion opportunity, owing to the right mix of talent, efficient transportation network, proximity to organized retail and the presence of good social infrastructure. With respect to commercial real estate, the center of IT Corridor continues to attract high demand from office occupiers on the back of adequate availability of commercial office space at attractive rentals.

Over the years, locations such as Nanakramguda, Appa Junction, Narsingi and Nallagandla in western Hyderabad have turned out to become emerging real estate corridors due to their proximity to the Outer Ring Road (ORR) and superior connectivity. Also, existing and upcoming commercial and residential developments in Nanakramguda (Extended IT corridor) are expected to further support the evolution of these micro markets in the short to medium term.

The rise of Hyderabad is an ideal testimony of the city’s real estate transformation enabling more demand and supply of office space, potentially fueling the residential sector. Hyderabad rose to become a hotspot for IT/ITeS industry, start-up ecosystem, logistics and warehousing of the top e-commerce companies and overall employability. Various factors like Private equity boost, growth across IT/ ITeS, Co-working has also contributed to the growth of the sector and in time to come, eastern part of Hyderabad (including Uppal) will see momentum, driven by Metro Rail access and Telangana government’s ‘Look East Policy’.

A few prominent developers in the city already have their office development in the east. While the city’s growth is also expected to slowly grow towards the east over the medium – long term driven by policy initiatives, availability of land parcel and infrastructure boost, the western corridor will continue to dominate office leasing.

– Gipson Paul, Executive Director, Advisory & Transaction Services, CBRE