Commercial Office Space - Best Performing Real Estate Segment


The 2018 year was the best performing year for the Commercial Office Space segment, reported by Knight Frank India in its 10th edition half-yearly report. It gave a comprehensive analysis for a period July-December 2018 on India's commercial real estate market performance across its major cities - Mumbai, NCR-Delhi, Hyderabad, Bengaluru, Chennai, Ahmedabad and Pune.


It reported that the market grew by a record high of 12% y-o-y for the full 2018 year and has achieved the transaction volumes of 46.8 million sq ft, which is the highest in the Indian office space market of this decade.


Bengaluru is the leading the office space market, with a record 7.6 million sq ft leasing in a full 2018 year. Hyderabad too, saw the highest percentage increase in space transacted i.e. at 30%. This has been close to large markets like as Pune, Mumbai and NCR.


The major contributor to this growth has been the Co-working Spaces. The leasing activity by co-working spaces saw a significant rise of 52% y-o-y in 2018(June-December) as compared to the same period in 2017.


Hyderabad Office Absorption: An Insight


A strong traction in Hyderabad’s commercial space is specifically witnessed in office space segment. By the end of the 2018 year, Hyderabad saw the absorption of 6.40 million sq. ft office space across the city, which is around 18% higher than last year. \


Deals greater than 10,00,000 sq. ft constituted 70% of total leasing activity in Q3 2018, which was 30% higher than Q2 2018, this indicates the rising occupier confidence in Hyderabad’s flourishing market.


This has been majorly contributed by tech giants like Facebook, Accenture, CoWrks among many other companies.


The IT/ITeS sector is expected to stay dominant over the next three years (2019-2021). The pharmaceutical and biotechnology sectors are also likely to perform well with the kind of positive initiatives taken by the government.


Hyderabad is expected to deliver office space of about 70 million sq. ft in the city's western part, in the next 5 years.


A leading global investment consultancy asserted that there has been a surge in the demand for office as well as residential spaces in the city. Various new project launches have been seen in the October-December period of last year.



Growth Factors for Office Segment:


  1. Co-working Spaces

Apart from the IT/ITes sector and manufacturing companies, considerable demand for office spaces also came from co-working space operators. With this huge demand for offices, areas like Madhapur and Gachibowli, it has seen an upward trend in rentals by nearly 5-7% on a y-o-y basis.


  1. Favourable Investment Climate

The rise in property and rental rates is due to the expansion taken-up by several companies and the favourable investment climate seen in the west zone of the city. Out of the total new launches in the city, over 70% share belonged to the western region of the city.


A majority of the new real estate project launches were in the locations such as Manikonda and Kondapur, which have gained prominence as residential neighbourhood because of proximity to various employment hubs.

Similar new launches were also seen in north-western peripheral locations of city - Kukatpally and Bachupally.


  1. Better Employment Prospects

Vacancy levels as low as 4% in Hyderabad city, is pushing the rentals higher in this strategically located micro-market comprising - Hitech City, Madhapur, Financial District Raidurg and its surrounding areas.


  1. New Market Areas are Rising

The peripheral business district micro-market, comprising of Pocharam, Uppaland and Shamshabad, is catering to occupiers looking for new Grade A facilities and IT parks. The low supply and high demand in this micro-market resulted in a y-o-y rental increase of 9.1% in Q4 2018.


Plan to Meet the Needs of Future


Real estate experts assert that in future, the western part of the city will be more populous and expected to add over 60% of the existing population. To avoid more chaotic situation more infrastructure, both physical (roads, water supply, drainage, etc.) and social (education, health, shopping, security, etc.), will be required to develop to balance the population explosion.  


With the announcement of the formulation of a Comprehensive Plan by the Telangana state government, to convert Hyderabad city into a truly global.


This Comprehensive Plan will be designed to meet the future needs of the growing city - population explosion, congestion, traffic issues, drainage, transportation and reducing green cover.


Conclusion:


Keeping these developments in mind, it is expected that the office space occupancy demand to remain strong, along with the support of the upcoming supply over the next three years. This will also help in pushing the average city rents by 2.3% over 2018-2021. This concludes that the future prospects of Hyderabad city are looking bright and the present time can be considered as the best time for investment in this segment - Commercial and Office space.