Grade A office space in Hyderabad to increase at about 4% annually
Hyderabad has risen to the second spot in gross office absorption in 2019, registering a peak in office space demand, reveals Colliers Radar: Resurgence of Hyderabad, a latest report released by Colliers Research. The whitepaper further reveals the city is witnessing high demand due to a host of attractive attributes including the newfound political stability after the formation of the new state, introduction of growth conducive policies, adequate infrastructure, availability of a vast talent pool and high quality of life. Further, the Western part of the city is poised to witnesses massive growth in the next five years due to rising occupier interest and infusion of planned supply.
“The Western corridor of the city is expected to witness a robust growth in leasing activities projected to reach 3.8 million sq ft of pre- commitments, to be occupied in 2020. The occupiers from the Central Business District (CBD) who are looking for office space to consider HITEC City and Rai Durg submarkets for expansion or relocation in the wake of the huge upcoming supply of 8.0 million sq ft planned by the end of 2020”, says Sankey Prasad, Managing Director and Chairman at Colliers International India.
During 2019, flexible workspace operators leased 4X as much office space compared to 2018. We recommend flexible workspace operators look at Off SBD locations such as Nanakramguda and Kokapet as demand from occupiers will likely be strong in these submarkets.
“Hyderabad’s total stock was close to 65 million sq ft at the end of 2019, with 90% of the supply concentrated in the Western corridor and about 84 million sq ft of new supply is projected in this submarket by the end of 2024” says Arpit Mehrotra, Managing Director, Office Services, South India at Colliers International India.
By the end of 2020, almost 4.0 million sq ft of pre-commitments is expected in Hyderabad. The tenant experience is taking centre stage and developers are looking to differentiate their projects to command premium rentals from elite occupiers. With the huge influx of upcoming supply, developers would need to differentiate their projects to seize the upswing in demand. The developers are expected to adopt flex and core model combining a long-term lease for core operations and flexible workspace to accommodate variable headcount associated with shifting operational demands.
According to Colliers Research, the demand for Grade A office space in Hyderabad to increase at about 4.0% annually over 2020-2024 crossing 11 million sq ft by the end of 2024. Grade A office stock in Hyderabad’s western corridor is about 59 million sq ft, making this area the largest micro market in Hyderabad. The report estimates the upcoming supply to increase stock by 141% by 2024.
Further around 46 million sq ft of new supply is planned in 2020-2021, surpassing Colliers’ projected demand by two times and pushing our forecasted vacancy levels from less than 5.0% to over 10%. We expect rental growth in western Hyderabad to soften as a result, from a CAGR of 8.0% during 2017-2019 to 2.5% for 2020-2021, considering the huge influx of supply.
“We expect Hyderabad to be among the top four office markets in India by 2024, led by expansion of technology companies, and global in-house centers. This will be well led by the city’s GDP, which is likely to be the third-fastest among key Asian cities and regions, over the next five years. This robust growth in office space is driven by the rising technology occupiers’ expansion in Western Hyderabad areas of Rai Durg, Gachibowli and Kokapet, and business-friendly policies from the state government, which is providing an impetus to investors and occupiers alike”, says Megha Maan, Senior Associate Director, Research, Colliers International India.