Resilient commercial real estate in Hyderabad

Posted: Posted Date – 11:07 PM, Fri – 10 Jun 22

File photo of Samson Arthur.

Hyderabad is one of the fastest growing tech hubs in India. The city has become one of India’s fastest growing real estate markets, thanks to aggressive government policies, top quality infrastructure and a large pool of talent. While the pandemic has hampered office leasing activity in all markets, the rebound in leasing activity in Hyderabad in the second half of 2021 has been strong.

GRID policy influencing the development of commercial real estate:

Hyderabad’s Growth Dispersion (GRID) policy aims to spread the IT industry to non-Western regions. According to research by Knight Frank India, the office market remained flat in 2021, with transaction volumes matching the previous year’s annual total of 6.0 million square feet. In the first quarter of 2022, Hyderabad got off to a promising start with office space transactions up 72% year on year to 1.6 million sq ft, while the average negotiated rent remained stable at 61.7 rupees per square foot per month.

The IT industry continues to be the largest office occupier, contributing 55% of all transactions. Tech players, non-banking financial services as well as international pharmaceutical companies continue to be the main occupants of the city’s good quality (Grade A) office space.

The commercial property market in Hyderabad is also seeing a shift towards coworking spaces, which has bridged the gap between occupiers and developers. Coworking has evolved into what is now popular as “managed office” space due to the flexibility they offer in terms of cost, occupancy, and amenities. It has also become increasingly popular due to the new flexi and hybrid work culture in the post-pandemic era. New companies continue to enter the market for managed offices and coworking spaces, aiming to establish a foothold in the city. Those who survived Covid continue to expand their portfolios even as occupiers seek to take over their offices to reduce attrition.

Factors influencing the growth of commercial real estate market in Hyderabad:

Despite postponing return to office in Q1 due to Omicron impact, Hyderabad’s occupancy rate remained high, exceeding 88.2% in Q1 2022 from 87.8% in Q4 2021 and 85.6% in the third quarter of 2021. The IT industry leads with 55% share of the total space processed, followed by BFSI (12%).
As tech companies embrace remote working methods to attract globally distributed talent, the need for physical hubs with accompanying digital infrastructure remains. Factors such as the existence of well-planned infrastructure and growing opportunities in the IT/ITeS sector and manufacturing industries have enhanced the attractiveness of Hyderabad.

Additional factors such as good connectivity, favorable government policies and development of industrial and warehousing facilities have increased the demand for commercial properties in growth corridors like Medchal, Shamshabad and Patancheru.

Supportive government policies:

Telangana has evolved over the past few years to become a preferred destination for global investments under the leadership of Chief Minister K Chandrasekhar Rao.

The state government’s supportive industrial policies had played a crucial role in attracting investment and boosting the real estate market as a whole. While transaction volumes have increased, rental levels have held steady or increased over the past two quarters. Occupancy levels should improve as IT companies return to the office; rents are also expected to firm up as demand increases. Overall, the commercial market outlook in Hyderabad remains strong and is expected to reach pre-pandemic levels.

-Samson Arthur
Senior Branch Manager Hyderabad
Knight Frank India

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