Yes it certainly is one of the best phases for Hyderabad's real estate market especially for the office market segment in Hitec city. The current situation of demand being much more than supply is a dream run for developers. Lucky are the developers who are completing their projects now +/- 12 months. Some of the developers who were ruing a slow market a few years back cannot believe their slice of luck of completing their projects in 2016. This situation is likely to remain the same for most of 2017. From 2018 onwards supply is expected to catch with demand and that might trigger another cyclic movement.
Hyderabad's office market has clearly put their gloomy past of 2008-14 behind. It has now moved forward to take advantage of the renewed interest in the city and a progressive government. In past 24 months the office market has zoomed from being the cheapest office market to probably one of the costliest now. Rents were way below Bangalore, Chennai and Pune till 2014-15. Now quoted rents in Hyderabad seem ahead of Chennai and Pune, in some cases even better than Bangalore. Today definitely the developer / landlord are kings in Hyderabad's office market especially in Hitec city.
Hyderabad's market exuberance is probably making up for the lost time in the past. Recently with a prominent developer quoted rentals moved from Rs. 50/sft/month to Rs. 55/sft/month to Rs. 60/sft/month within a span of 3-4 weeks. Today brokers have to keep a track on availability every 7-10 days and especially reconfirm the rental quote from the developer / landlord. Clients have started looking at more locations for value for money options away from Madhapur, Kondapur and Gachibowli. Resultantly Financial District area and Nanakramguda are also experiencing low vacancy levels in Grade A facilities. Even Grade B facilities do not offer many options.
Till recently Kukatpally was a strict no-no for office space clients. The sudden escalation of rents in the Hitec city has made locations like Kukatpally, Hafeezpet and Miyapur attractive in terms of lower rentals. Today the lowest Grade A rentals are prevalent in only Kukatpally. In the past few months 10-12 clients have shifted office to this side of town. Couple of clients have even exited SEZ's and moved to Kukatpally to take benefit for lower rentals.
The sharp increase in rental on one side is good for the market but we should not forget that this very good fact has the potential of becoming a market dampener as well. Presuming rentals remaining same in Bangalore. Hyderabad, Pune and Chennai, the only differentiator is infrastructure in terms of electricity, water, roads, airport etc. On all these points, infrastructure experts rate Hyderabad better than most of its competitor cities. Office clients would be willing to pay a premium for better infrastructure but if rents keeping heading northwards then clients might be forced to look at other cost effective options. While Hyderabad is becoming a costlier office market, some other markets like Gurgaon-Sohna corridor, Noida or Navi Mumbai might be becoming more attractive in terms of rentals.
Bangalore was always preferred destination till 2000 due to various reasons like better climate, talent pool and infrastructure. Rentals started rising and clients paid a premium upto a certain point where the positives of Bangalore did not make commercial sense. Clients then started evaluating other cities like Chennai, Pune and Hyderabad. Resultantly client movement to these cities increased manifold post 2000 till date. This situation remains the same. Clients are willing to pay a premium for any city's positive features but not beyond a commercial viability point.
In Hyderabad, especially Hitec city, road infrastructure is appalling. Drive times from Begumpet to Hitec have increased from 30 minutes a few years back to 60-90 or more minutes nowadays. Why Begumpet, drive time within Hitec is becoming 30 / 45 / 60 minutes point to point. Try driving Hitec city roads during office hours and anybody's view on Hitec's road infrastructure would change. After this years monsoon road situation has moved from bad to worse. Drive times in Hitec post heavy overnight rain, took one hour to reach Kothaguda crossroads from Madhpaur police station junction. Main roads, lanes, bye-lanes all were choked.
What needs to be done by the government is to immediately address the road infrastructure issues in the city especially Hitec city. The metro would solve this problem to a limited extent only. IT employee's predominately live north and south of Hitec city and both these locations have no metro connect to Hitec. A combination of wider roads, flyovers, underpasses etc need to be put in place so that Hyderabad does not get the same reputation as Bangalore has today in terms of nightmarish road infrastructure. The government has done a commendable job in terms of improving electricity situation in the city. Water situation is also improving slowly. Roads remain critical and are crying for immediate relief.
Another thing the government can do it to start motivating the IT industry to look towards other sides of the city. The eastern side has some IT coverage but a lot more needs to happen. The southern and northern side are completely bereft of any IT movement. A city cannot keep developing properly with the lopsided development that Hyderabad has today. The pressure of development of the western corridor needs to be brought down.
Office market demand in areas like S. P. Road & Begumpet have also started showing better momentum. In these areas no new supply has been added but existing building have high levels of vacancy. Clients are getting some good deals in this area. Except for Madhapur / Kondapur area and SEZ's, rental quotes for Grade A office space from S.P. Road to Financial District are now in the range of Rs. 40-50/sft/month.
The residential market has improved but not as well as the office market. Sales with most developers are much better than same times in earlier years. Developers would have expected things to be much better given the exuberance in the office market, which is still not happening. Good news, as per newspaper reports, seems to be the government's willingness to explore solutions to the APHB related projects. Thousands of retail customers have invested crores in these projects. Any solution to this vexed augurs well for the market.
Overall we can expect things to get better in the residential space and that is when the Hyderabad market would have truly come out of its gloomy past.
written by :Mr. Aju Thomas
Comments are closed.