sign in sign up
<<
Home , Gachibowli, HITEC City, Hyderabad, Jubilee Hills, Madhapur, Raheja Mindspace

OFFICE TRACTION@GLANCE

HYDERABAD OFFICE TRACTION@GLANCE February 2014

SECTORAL ANALYSIS GEOGRAPHIC ANALYSIS OUTLOOK MAP OFFICE TRACTION@GLANCE FEB 2014

Introduction

yderabad is the administrative, consulting and media grow over the financial and economic capital years and they constitute almost 14% Hof and the of the market today. Extremely largest contributor to the state's GDP. affordable rentals, ample availability of This city whose commercial landscape quality real estate and a massive talent The Hyderabad office was predominantly made up of pool make Hyderabad one of the most market lost some traction engineering based industries and attractive destinations for the IT/ITeS during 2013 as absorption trading companies has seen a dramatic sector in . change over the last few decades. numbers were down by The Hyderabad office market is approximately 9% With the IT boom, global IT/ITeS classified in to different business compared to 2012. These leaders like , IBM, , CA, districts. Locations like , HP, GE and Convergys set up offices in , , depressed absorption Hyderabad and furthered the case for and form the CBD & Off- numbers coupled with over large scale development of CBD office markets. Other key micro- 6.7 mn.sq.ft. of office space infrastructure facilities and rapid markets like , and growth of contiguous locations HITEC City form the Suburban Business coming online during the surrounding the HITEC City area which District (SBD) and primarily comprise year have caused is at the centre of the IT boom in the IT/ITeS strength of the region. vacancy levels to spike Hyderabad. Another key IT/ITeS hub, , forms a part of the Peripheral Business considerably from 14% in The office space market in Hyderabad District-West (PBD W) micro-market. 2012 to almost 18% at the today is dominated by the IT/ITeS Locations such as Uppal and Pocharam end of 2013. However, this sector that occupies almost 78% of the towards the east that have the lowest stock while the manufacturing and BFSI rents in Hyderabad constitute the has not affected rentals yet sectors occupy 6% and 4% respectively. Peripheral Business District-East (PBD E) as the average rental rates The prime factors working in favour of micro-market. Extensive infrastructure have stayed sticky over the the Hyderabad office market are its developments like Outer and reasonable rental values and better radial roads have further led to office past year. infrastructure, as compared to other space development in peripheral IT/ITeS dominated cities. Hyderabad locations like , Pocharam has also seen the presence of other and other HADA localities. service sector companies like

FIGURE 1 Business District Classification Business District Micro-markets CBD & Off-CBD Banjara Hills, Jubilee Hills, Begumpet, Ameerpet, Somajiguda, Himayat nagar, Road,

SBD HITEC City, Kondapur, Madhapur, , ,

PBD West Gachibowli, , Madinaguda, ,

PBD East Uppal, Pocharam

Source: Knight Frank Research

FIGURE 2 Year New Completion Stock Vacancy Total Absorption (mn.sq.ft.) (mn.sq.ft.) (mn.sq.ft.)

2012 5.1 49.1 14% 4.1

2013 6.7 55.9 18% 3.7

2014E 3.4 59.3 16% 3.8 Source: Knight Frank Research

4 OFFICE TRACTION@GLANCE FEB 2014

Currently, the total office space stock in political upheaval and unfavourable The IT/ITeS sector has been the primary Hyderabad is 55.9 mn.sq.ft. of which global economic conditions were felt driver of the office space market in 44.8 mn.sq.ft. is occupied resulting in a across sectors. Occupiers remained Hyderabad and accounted for vacancy level of 18%. Vacancy levels cautious about their expansion plans approximately 2.84 mn.sq.ft. of have been on the rise since 2011 when and refrained from expanding current absorption in 2013. This sector forms they were at 13% as absorption operations. 2013 saw corporates focus the backbone of the Hyderabad office numbers have fallen substantially in the largely on consolidating existing office space market and consistently takes up face of continuously increasing supply. spaces to enhance operational the lion's share of the transactions pie. efficiencies and reduce costs. IT/ITeS sector companies such as , Google and were FIGURE 3 The Hyderabad office market lost some Occupier Profile among the companies that took up traction during 2013 as absorption BFSI IT/ITeS Manufacturing large format office spaces during this numbers were down by approximately Other Services Sector* year. 9% compared to 2012. These depressed 4% absorption numbers coupled with over A 0.35 mn.sq.ft. lease in Raheja 13% 6% 6.7 mn.sq.ft. of office space coming Mindspace at HITEC City inked by online during the year have caused IT/ITeS major Cognizant was the vacancy levels to spike considerably largest transaction during 2013. from 14% in 2012 to almost 18% at the 78% The manufacturing sector share lost end of 2013. However, this has not some ground over 2012 as it accounted Source: Knight Frank Research affected rentals yet as the average for 0.23 mn.sq.ft. in 2013. The bulk of * Service sector companies besides those included in the rental rates have stayed sticky over the BFSI and IT/ ITeS category the space transacted by this sector was past year. concentrated in the SBD. A 65,000 sq.ft. lease inked by pharmaceuticals major, FIGURE 4 Business District Wise Distribution at Water Mark Tech of Stock Park in HITEC City was the largest deal

SBD CBD & Off CBD Sectoral signed by manufacturing sector

PBD East PBD West company during 2013. With the central Analysis government's focus on increasing the

12% share of the manufacturing sector in 4% India's GDP, it is likely that this sector's share will stay buoyant. 19% FIGURE 5 A Comparison of Sale and 64% Lease Transactions The market share of the BFSI sector stayed constant over the analysis Total Area transacted period and most of the 0.14 mn.sq.ft. 2012 2013 Source: Knight Frank Research 4.11 mn.sq.ft. 3.74 mn.sq.ft. taken up by this sector during 2013 was concentrated in the SBD locations of Average lease rate HITEC City and Raidurg. Invesco, Hyderabad is endowed with all the 2012 2013 and HDFC were among elements that can nurture the growth `35-37/ sq.ft./ month `36-38/ sq.ft./ month the BFSI sector companies active during of a vibrant office market much like Source: Knight Frank Research 2013. Bengaluru. However, the lack of political will that has kept the issue The other services sector saw its market festering has rendered the business share increase significantly as it environment uncertain enough to deter FIGURE 6 accounted for approximately Distribution of Office Space 0.52 mn.sq.ft. in 2013, nearly 89% of fresh investments from corporates. Absorption Across Sectors Consequently the real estate market which was transacted in the SBD Broad Industry 2012 2013 business district. Consultancy firms like has suffered as the city was unable to Classifications , Halcrow and Ernst & Young fulfil its potential as corporates waited BFSI 4% 4% and telecom service providers such as IT/ITeS 78% 76% on the side lines for some measure of AT&T and Beam Cables were among closure on Telangana. Manufacturing 9% 6% the prominent other service sector Other Services Sector* 9% 14% companies active in the market during The Hyderabad office market witnessed 2013. Source: Knight Frank Research a contraction in absorption levels * Service sector companies besides those included in the during 2013 as the impact of regional BFSI and IT/ ITeS category

5 OFFICE TRACTION@GLANCE FEB 2014

FIGURE 7 Select Transactions in the Hyderabad Office Market

Location Building Company Industry Approx. Area (sq.ft.)

HITEC City Raheja Mind Space Cognizant IT/ITeS 350,000

HITEC City Meenakshi Tech Park Deloitte Other Services Sector 258,000

Nanakramguda Jayabheri IT Towers Amazon IT/ITeS 253,000

Kondapur Divyasree Omega Google IT/ITeS 150,000

Nanakramguda Waverock IT/ITeS 125,000

Banjara Hills P&P Pramati Technologies IT/ITeS 100,000

HITEC City NSL Arena Infotech enterprises IT/ITeS 96,000

Gachibowli Lanco SEZ Sutherland IT/ITeS 80,000

Gachibowli DLF SEZ Hinduja Group IT/ITeS 70,000

HITEC City Water Mark Techpark Aurobindo Pharma Manufacturing 65,000

HITEC City IT/ITeS 64,000

Source: Knight Frank Research

Geographic respectively. IT/ITeS majors Cognizant 26%. This business district saw its and Google accounted for nearly 30% market share spike YoY as it claimed Analysis of the sector's absorption volume while approximately 0.75 mn.sq.ft. of the a 0.26 mn.sq.ft. lease inked by Deloitte space absorbed during 2013. Almost all at Meenakshi Tech Park in HITEC City of the space absorbed in this business FIGURE 8 claimed more than half of the space district was taken up by the IT/ITeS Business District and Year Wise taken up by the other services sector sector and concentrated in the two Absorption in Hyderabad during 2013. locations of Gachibowli and SBD CBD & Off CBD Nanakramguda. Amazon, Capgemini, 70% PBD East PBD West The SBD business district currently has Sutherland and Zensar Technologies 60% a stock of 29.4 mn.sq.ft. with vacancy were among the most active companies

50% levels at a healthy 11%. However, during the year while Jayabheri Orange

e vacancy levels in the SBD rose from 9% IT Towers and Waverock in 40% in 2012 to 11% in 2013 due to almost Nanakramguda and DLF SEZ and Lanco 30% % Shar 4.4 mn.sq.ft. of office space coming SEZ in Gachibowli saw the most

20% online during the year. Nearly half of traction. this space was constituted by IT SEZs 10% like Avance Business Hub and Divyasree The share of the CBD & Off-CBD 0% Orion while Divyasree Omega and The business district has fallen consistently 2012 2013 Source: Knight Frank Research Watermark Technopark were the as its desirability as a premium office prominent IT Parks that became fully space destination has reduced operational during 2013. considerably over time. Occupiers have The SBD accounts for over 60% of the shifted to comparatively lower priced office stock in Hyderabad and easily The PBD West business district of options in the SBD that today offer dominates its absorption pie. Its market Hyderabad lies further west of the similar market dynamics as the share has stayed practically the same SBD and is fast gaining prominence erstwhile CBD & Off-CBD. 2013 YoY as appproximately 64% of the as it offers a significant price absorption numbers have stayed true transactions during 2013 took place in arbitrage and greater choice to the to the trend and fallen 44% YoY the SBD market. office occupier without clocking approximately 0.52 mn.sq.ft. in compromising on overall project 2013. Over 72% of the transactions in Just HITEC City and Kondapur quality. this business district took place in accounted for a massive 91% of the Banjara Hills and nearly 80% of these total space transacted in the SBD. The It is the second largest business district were accounted for by the IT/ITeS IT/ITeS and other service sectors took of Hyderabad having 13.2 mn.sq.ft. of sector. Pramati Technologies, up 71% and 20% of the space office stock and vacancy levels close to Intergraph, USM Business Systems,

6 OFFICE TRACTION@GLANCE FEB 2014

Vivimed Labs, Beam Systems and IKeva were companies most active in this Outlook business district and office buildings such as Cyber Spazzio, MBM Tower and Subdued growth from the IT/ITeS Sanali Infopark in Banjara Hills and industry which is the primary demand Ashok Janardhan Chambers and driver in Hyderabad will result in strong Splendid Towers in Begumpet headwinds against rental growth during In our opinion, a division of respectively saw most of the action. 2014. Our interactions with various state will positively impact market stakeholders has led us to office space demand as Vacancy levels in this business district believe that the sensitive political are quite low at 12% in-spite of the scenario added an element of risk economic considerations dropping absorption levels and the which discouraged corporates from will overshadow political making fresh investments in ongoing exodus of corporates to motives eventually. western markets of Hyderabad such as Hyderabad. In our opinion, the division HITEC City and Gachibowli. This is of state will positively impact office primarily due to the fact that the CBD & space demand as economic Off-CBD business district is a supply considerations will overshadow political The market is expected to constrained market and has barely seen motives eventually. Expansion activity clock approximately from corporates already having a any new stock coming online in 2013. 3.8 mn.sq.ft. of office space This business district had a little over footprint in Hyderabad and for whom 11 mn.sq.ft. of stock at the end of 2013. relocation is a harder option to absorption in 2014. exercise, will sustain the market that is This coupled with the expected to clock approximately The PBD East business district that has limited inventory coming only 1.8 mn.sq.ft. of office space 3.8 mn.sq.ft. of office space absorption experienced approximately 0.1 mn.sq.ft. this year. This coupled with limited online this year will not of absorption with three companies, viz: inventory coming onboard in 2014 will exert further pressure on not exert further pressure on vacancy Infotech Enterprises, Ashland vacancy levels which will Laboratories and Genpact that took up levels which will move in the 16%-18% over 85% of the transacted space. range. Approximately 3.4 mn.sq.ft. of move in the 16%-18% Although occupiers evinced interest for office space is expected to come online range. locations such as Uppal and Pocharam, during 2014, more than half of which is they did not convert to transactions expected in the SBD. during the year despite offering the lowest rents in the Hyderabad office Other service sector entities like space market. This business district saw consulting and media companies that no new office space completions during have been scouting the market for the year and vacancy levels were at appropriate options should see their 29% at the end of 2013. share increasing next year. The SBD will continue to consolidate its standing as the new commercial core of Hyderabad FIGURE 9 and see bulk of the action going Average asking rental values in forward. However, the comparable Hyderabad (`/sq.ft./month) market dynamics of the peripheral western locations like Gachibowli will Business 2012 2013 District be hard to compete against given that the overall absorption pie is not CBD &Off CBD 45-48 43-47 expected to grow significantly as the SBD 39-41 39-41 corporate sector holds its breath PBD West 30-32 31-34 waiting for the effective formation of PBD East 24-26 25-27 the Telengana state. Source: Knight Frank Research

Our interactions with various market stakeholders has led us to believe that the sensitive political scenario added an element of risk which discouraged corporates to make fresh investments in Hyderabad.

7 OFFICE TRACTION@GLANCE

Research Dr. Samantak Das [email protected]

Consultancy & Valuation Saurabh Mehrotra [email protected]

Office Agency Viral Desai [email protected]

Cities Naushad Panjwani [email protected]

NCR Rajeev Bairathi [email protected]

Bengaluru & Hyderabad Satish BN [email protected]

Pune Shantanu Mazumder [email protected]

Chennai Kanchana Krishnan [email protected]

Report Author Yashwin Bangera, Lead Research Consultant

Knight Frank India research provides development and strategic advisory to a wide range of clients worldwide. We regularly produce detailed and informative research reports which provide valuable insights on the real estate market. Our strength lies in analyzing existing trends and predicting future trends in the real estate sector from the data collected through market surveys and interactions with real estate agents, developers, funds and other stakeholders.

elocitaBrand.com .V This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the www preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the form and content within which it appears.