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Hyderabad to Add All-time High Office Space of 21.5 Mn Sq. Ft in '24 Fiscal

DECCAN CHRONICLE | B. Krishna Mohan

Published on: September 13, 2023 | Updated on: September 13, 2023

The North-west Region in Hyderabad accounts for 88-89% of total grade-A office space.  (DC Image)

HYDERABAD:  Hyderabad’s real estate boom is set to get bigger, with the 2024 financial year (FY) set to see an addition of about 21.5 million square feet of office space, an all-time high. This would mark a 13 per cent compound annual growth rate from FY2017-2024, against an average of 7 per cent for the top six cities in India, according to debt instrument rating consultant Icra.

The company, in a release, said that Hyderabad accounts for 14.2 per cent of the total available office supply of the top six markets, as of June 30, 2023. The  share is expected to increase to 15.5 per cent by March 2024, positing a stable outlook on the country’s commercial office sector.

Icra said Hyderabad saw a healthy net absorption in the 2022 and 2023 fiscals, post-Covid-19 lockdowns, backed by good deal traction in new leases, offices resuming and a steady rise in physical occupancy of offices, easing vacancy levels to 13.8 per cent, from 16.5 per cent recorded in March 2021.

Occupancy in the Hyderabad market will decline by about 500 basis points, to around 81-81.5 per cent for Grade A office spaces by March 2024 due to an all-time high supply addition from 86, as of March 2023, it said.

Anupama Reddy, vice-president and co-group head, corporate ratings, Icra, said: "With an all-time high supply of 21.5 million sq. ft, the vacancy will go up by 500 bps. The current over-supply market conditions could turn out to be favourable for the new tenants. For the existing leased spaces, the rentals are expected to rise steadily due to contracted rental escalations. However, for new leasing, the landlords are expected to remain flexible by offering extended rent-free periods and consequently, the effective rent rate would be at a discount to the prevailing market rates."

"The top three segments, which continue to drive demand in Hyderabad are IT – business process management, BFSI and pharma/life sciences segment. Moreover, the share of flexible workspaces is likely to increase in the medium term," Anupama Reddy said.

The northwest region of Hyderabad, comprising Hitec City, Gachibowli and Financial District, accounts for 88-89 per cent of total A-grade office spaces, with the three micro-markets accounting for 75-76 per cent.

Vacancy levels are expected to remain stable in Hitec City (8-8.5 per cent), high for Financial District (18-18.5 per cent) and increase significantly for Gachibowli (19.5-20 per cent, from 11.6 per cent in FY2023) in FY2024 due to higher supply than absorption.

Despite higher rentals, hiked by around 9-10 per cent in Hitec City compared to Gachibowli and Financial District, it remains the preferred office location for tenants due to good transport connectivity.

Icra said that the top 10 developers in Hyderabad (of a total 130-140) contribute to around 60-61 per cent of the total grade-A office supply, with seven of the top 10 having healthy occupancy of greater than 85 per cent, which is higher than the average city-wise occupancy for Hyderabad on a sustained basis.

"Icra has maintained a stable outlook on India’s commercial office sector as India remains a preferred destination for global capability centres (GCCs). Favourable demographics, a skilled and cost-effective talent pool, availability of high-quality office spaces at competitive rentals, would continue to drive demand for the Indian office portfolio in the medium to long term," Reddy said.