OFFICE TRACTION@GLANCE HYDERABAD OFFICE TRACTION@GLANCE February 2014 SECTORAL ANALYSIS GEOGRAPHIC ANALYSIS OUTLOOK HYDERABAD 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 Andhra Pradesh 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 India. 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 Google, IBM, Accenture, CA, districts. Locations like Begumpet, HP, GE and Convergys set up offices in Ameerpet, Somajiguda, Banjara Hills depressed absorption Hyderabad and furthered the case for and Jubilee Hills 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 Madhapur, Kondapur 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, Gachibowli, 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 Ring Road 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 Shamshabad, 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, Raj Bhavan Road, Punjagutta SBD HITEC City, Kondapur, Madhapur, Manikonda, Kukatpally, Raidurg PBD West Gachibowli, Kokapet, Madinaguda, Nanakramguda, Serilingampally 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 Cognizant, Google and Amazon 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 Aurobindo Pharma 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 Andhra Bank 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 Telangana 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 Deloitte, 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 Orange IT Towers Amazon IT/ITeS 253,000 Kondapur Divyasree Omega Google IT/ITeS 150,000 Nanakramguda Waverock Capgemini 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 Raheja Mindspace Qualcomm 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.