A SNAPSHOT INTO REAL ESTATE ACTIVITY IN HYDERABAD
The Cushman & Wakefield MarketBeat reports analyze quarterly economic and commercial real estate activity including supply, demand and pricing trends at the market and submarket levels. Here’s a look at the facts and figures they have published for Hyderabad office market Q1, 2020.
Grappling With the COVID 19 Uncertainty
Before the world stayed indoors to #StopTheSpread of COVID 19 pandemic, the Hyderabad office market was riding a robust leasing momentum continuing in the vein of 2019. The numbers looked bright and promising. Gross leasing at 1.8 MSF was higher by 12% y-o-y. However, with the COVID-19 becoming a global pandemic, activity tapered off towards the end of February and as a result, the space take-up was lower by about 70% q-o-q. Leasing activity is likely to remain muted in Q2, but a gradual pick-up is likely in H2 depending on how soon the lockdown is lifted and the subsequent situation evolves.
The story before the pandemic, however, was rosy. Flexible space operators and the technology sector together accounted for nearly 80% of the leasing activity in Q1. Large managed space providers such as Simpliwork, Smartworks and Tablespace had leased more than 700,000 SF in Q1, targeting the strong enterprise demand base in tight vacancy market conditions. Madhapur remained the dominant submarket accounting for nearly 3/4th of the office demand followed by Gachibowli at about 25%. Pre-leasing was also healthy with a 37% share in the gross leasing activity for the quarter, with several tenants like Vertafore, Medtronic, MassMutual and Tanla leasing space in projects lined up for completion in H2 2020. Net absorption was recorded at 0.9 MSF, a drop of 18% q-o-q largely because of limited new supply becoming operational during the quarter and vacancy being very tight in the core markets.
Space Constraints Continue in Q1
The Cushman Wakefield report states that the overall vacancy at the city level remained stable at 5.5% during the quarter. New supply of 1.0 MSF was added with project completions recorded in Gachibowli and Jubilee Hills. Nearly 70% of this new supply was already pre-leased. Vacancy in Madhapur has tightened further to 1.5%, the lowest ever recorded since 2016 and it is expected to remain tight at 3-5% over the next 6-9 months considering significant levels of pre-leasing in upcoming projects as well as possible supply deferments in the short term due to the outbreak of COVID-19. Given the impact on resource mobilization and sourcing of raw materials nearly 3-4 MSF of upcoming supply scheduled for completion in 2020 is likely to be delayed. Developers may not have to rush to complete projects as occupiers will remain flexible with timelines in the short term as they seek to resolve BCP issues and rework core business plans in the wake of the uncertain global environment precipitated by the COVID-19 outbreak.
Rental Concessions Unlikely
It is predicted that the leasing activity is likely to remain muted in Q2, but a gradual pick-up is likely in H2 depending on how soon the lockdown is lifted and the subsequent situation evolves. The report states that office demand and net absorption over the next 12 months are likely to soften given the headwinds for the global economy and its impact on office demand. The report says that consolidation strategies may take a backseat including demand from small & medium enterprises; start-ups may also see a reduction in space requirements in the short term. IT-BPM, flex space providers will continue to drive the market going forward while captives, which have fuelled office demand in the city over the last 2 -3 years could pick up in a phased manner until 2021. It is expected that coworking operators be careful in expanding very rapidly and may take a more considered view going forward.
As COVID 19 brought the world to a grinding halt, GAR Infobahn, as one of the leading integrated SEZ and Non-SEZ business parks with office spaces and amenities adhering to global standards, took on a vanguard role in ensuring that the campus set industry-leading benchmark in areas of screening, social distancing, and sanitization to ensure safe and seamless business continuity of all clients working at the premises.
As we eagerly await the resumption of business as usual, it is also time to put in a note of thanks to all our clients who stand by us during this period of crisis. The adversity has not only brought us closer but also helped us realize the true value of collaboration and partnership.
We eagerly look forward to partner with our clients as they etch their emblem on the Hyderabad success story.
