Decline in Office Space Leasing in Hyderabad

HYDERABAD: Though the office market is growing steadily across the country, Hyderabad witnessed a decline in office space absorption in the first quarter of 2015, according to a report by real estate property consultants, Cushman & Wakefield.

The IT sector is driving the demand for office space by recording nearly 70 per cent of the total absorption in Grade A office spaces. Classified as ‘emerging markets’ the office leasing market recorded a positive growth across most major cities in India. There was a total rise of 20 per cent year - on - year in the net absorption of Grade A office space throughout the country in the first quarter of 2015.

However, Hyderabad witnessed nearly 1 million square feet (msf) of supply in the first quarter of 2015, a decline of 9 pc from the previous quarter, the report stated.

Grade A developments contributed 65 per cent to the total supply, which was mainly concentrated in the suburban locations of Madhapur (65 per cent) and Gachibowli (21 per cent). IT-SEZ developments dominated the supply with a 65 per cent share.

As per the report, while the decline in supply was marginal, the city witnessed a sharp decline in Grade A net absorption. Grade A net absorption declined by 36 per cent to around 0.6 msf at the end of this quarter. The decline was due to relocations being higher than new leasing and expansions, the report revealed.

Though the IT-ITeS sector dominated leasing activity with a 65 per cent share, majority of the space (53 per cent) was leased in non-IT buildings. The report suggested a marginal decline in vacancy rates as well, even as the rentals remained stable.

Stable rentals were noted in most submarkets, except the prime suburban submarket where the weighted average rental values depreciated by 6 per cent due to an increase in vacant spaces because of higher supply.

Overall vacancy rate for the city decreased by 0.6 percentage points and stood at 17.6 per cent in this quarter. However, lower absorption coupled with high supply addition in Grade A developments in Suburban Madhapur submarket resulted in a 0.5 percentage points increase in vacancy rate.

According to the report, the overall outlook looks slightly brighter as far as rentals are concerned. Rental values in Gachibowli submarket may appreciate marginally in the next quarter, as upcoming supply is likely to be introduced at higher rentals, the report added.

“The first quarter has seen a trend setting start and the momentum is expected to remain steady. The new positive announcements by the government have helped bring fresh air to the real estate market in India. However, critical aspects like ease of business, land availability and business sustainability and continuity still remains a concern. There is visibly increased leasing activity and appreciation of rent along with commercial terms. This is likely to continue as demand seems robust,” Sanjay Dutt, executive managing director of Cushman & Wakefield in South Asia, said.

SOURCE: THE NEW INDIAN EXPRESS