Hyderabad reports highest rate of increase in office space absorption. Prime space rental shoots up
The increase in office space absorption in the last three quarters in Hyderabad is expected to generate higher demand for residential units in the next six months, according to market observers.
Upsurge in the office space activity was able to keep the housing sector recovery hopes alive despite the disappointment associated with the delay in the launch of metro rail early this year, they said.
With an 84% growth in net office space absorption for the Jan-Sept period last calendar year, Hyderabad has joined the fastest growing markets in the country in office leasing by adding 3.87 million sft, according to a report from global real estate consultant Cushman and Wakefield. The average deal size here increased 28% at 18,400 sft, the report stated.
Increased activity has resulted in a sharp rise in office rentals from Rs 40-41 per sft seen a year ago to Rs 47 now. Tracking this, vacancy levels have dropped to the lowest 4-5% currently across all prime locations, said real estate consultant JLL.
“We would not be surprised if the rentals touch Rs 50 per sft soon,” said Sandeep Patnaik, managing director of JLL, here. With so much of activity, the most-preferred financial district has become very congested now, he added. While other metros in south like Chennai and Bengaluru have multiple corridors allowing corporate houses to expand, Hyderabad has very few options in this regard.
According to him, the market here would gather more steam as three IT & ITeS firms were in advanced stages of discussions to float a request to clinch a large chunk of space in the coming months. It must be noted e-tailer Amazon had closed a deal for acquiring 300,000 sft space recently near Shamshabad. Other major player Flipkart too had gone in for around 250,000 sft for its back-end operations at Medchal near here, and Swedish retailer Ikea has announced an investment of Rs 500 crore here.
Considering all of this, the technicals for residential market are looking very bright and would be in a “sweet spot” in the next two-three quarters, they said.
While residential property prices have remained stable in the last two years, developers could raise them in the near future.
Speaking to Business Standard, Jayashree Kurup, head of content and research at real estate portal MagicBricks, said buyers here were looking for a further drop in interest rates to hit the market, and added “buying sentiments are not down”. In their research on consumer sentiment, it was observed that users here did not say they would not buy property. Magic Bricks expects residential prices to rise after Dussehra this year.
According to data compiled by Cushman for the first three months this year, housing sector capital values have remained stable. It had noticed a 3-6% price appreciation in the prime Banjara Hills and Jubilee Hills locations, when compared with the corresponding period last year. The average price per sft in these two locations stood at Rs 7,000-10,000 during the period. Developers launched around 3300 new units during the aforesaid period and a majority was in Gachibowli, Madhapur, Sainikpuri, Miyapur and Kompally.
City developers are yet to witness the pre-2008 record boom for housing units. According to sources in the real estate market, housing developers here are finding it difficult to cope with the high cost of financing, and are not considering hiking rates in the near term.