In 2016, the absorption of office space in Hyderabad doubled and the demand rose to denote almost 6 million sq. ft. The commercial real estate market in Hyderabad clocked office supply growth at 17% behind Bangalore’s 23%. But, the story has turned around in 2019 and how!
The current year’s absorption of office space in Hyderabad stands at 11.4 million sq. ft. and roundly defeats Bangalore’s office space sales figures. Hyderabad will in all likelihood claim 27% share of the country’s new completions for the year riding on its previous commitments.
Hyderabad recorded the highest office leasing in the country in the second quarter of the year while in the first quarter, Hyderabad dominated the closures of large-size deals.
The Back Stage
The commercial and investment-related expansions have really favoured the state with IT/ITesS and BFSI (banking, financial sector, and insurance) players entering the field along with flexible space operators. Add to this, the confidence that the state provides through business-oriented policies and reforms and it is clear how Hyderabad’s growth story has panned out.
Some of the reasons behind the growing demand for office space in Hyderabad are:
- The five-year period ending in 2019 has seen huge investments in the office market.
- The creation of the new state brought in industry-friendly laws and investment attracting policies.
- The push towards making the state an investment destination saw funds to the tune of Rs 10,100 crore being pumped in during the 2015-2019 period.
- State reforms in infrastructure and real estate attracted both investors and occupiers.
- Hyderabad’s occupancy rates are lower than those of Bangalore by 25%. For instance, Outer Ring Road in Bengaluru has a rate of Rs 75 per sq. ft. while Madhapur in Hyderabad has a rate of Rs 55-60 per sq. ft.
- Contribution towards the SEZs and SEZ units that were approved in the city.
- The city boasts of a huge talent pool and manpower services.
- Stable economic growth has attracted big corporate players and technological giants boosting further economic and infrastructural developments.
The Market Players
In the 2018-2020 period, Hyderabad will approximately add 38 million sq. ft. of office space to its total compared to Bangalore’s expected addition of 31 million sq. ft. This massive addition of office space in Hyderabad will take it to the top beating Bangalore. The various completed and under-construction projects that will provide the top seat to Hyderabad belong to big names like My Home, RMZ, Phoenix-Embassy, GAR Corp, Salarpuria, Tishman Speyer among others.
A lot of this office market space and leasing demand is aided by the expanding and consolidation operations by technology corporates and co-working space operators. The corporates driving the occupancy demand are Amazon, Apple, Google and Microsoft along with WeWork, Service Now, Qualcomm, Micron, and S&P Global.
The Quarter Comparisons
The first and second quarters of the current year gave a new lease of life to Hyderabad in terms of office space sales. As recent as the year 2018 saw the city with only 1.7 million sq. ft. availability while at the same time, Bengaluru had 9.6 million sq. ft. of office space supply. So what changed the odds? The supply of quality space or Grade- A office space which was promptly taken up by occupiers. Thus, in the first quarter or January-March 2019 period Hyderabad scored 3.2 million sq. ft. of office space deals while in the same period, Bengaluru could only score 2.5 million sq. ft. The two cities are sharing 47% of the total country’s share between themselves.
The Road Ahead
The office segment in Hyderabad is set to add a whopping 18 million sq. ft. of office space supply in 2019. This was due in a large part to the completion of projects that were stalled during the state bifurcation process. The market is likely to double in the coming years as more and more big business players are waiting to join the segment. According to market reports, most of the space supply is pre-leased while occupiers are waiting to lease options that are yet to be available. The upcoming space figures could be in the tune of 50 million sq. ft.
Improved connectivity due to completed and ongoing projects and rise in the mid-market residential sector has raised the living standard of the city. Hyderabad is today much better equipped at accommodating a growing population. Given the government’s dedicated push, the promising upward trend of the commercial real estate sector is expected to continue.