A lot has changed in Hyderabad's real estate market in the past 12 months, but one thing that has not changed is that a lot of us continue to be cynical about this market. One would be happy to discuss / debate these negative viewpoints about the market provided it supported by hard data and not emotional outbursts.

Let us analyze certain developments and understand the pointers:

  • In Hitec city the rentals in the past 12 months have seen a dramatic increase, especially for Grade A office space. Rents ranged between Rs. 35-40/-psf/mth in Hitec about 15-18 months back. Post the political solution, the rentals started climbing and ranged between Rs. 40-45/-psf/mth around 6 months back. Today Grade A office space quote in Hitec is around Rs. 50/-psf/mth.
  • To put these numbers in context, the highest rentals previously seen in the same market segment in 2006-07 was in the range of Rs. 41-43/-psf/mth. The market nosedived from 2008 onwards and lowered to around Rs. 30-32/-psf/mth.
  • Since late 2013, increased IT office demand and limited supply has helped rentals go up substantially. Today Hyderabad office rentals for Grade A office space are more than Pune / Chennai. Hyderabad is no longer the cheapest office market for IT tenants.
  • The rentals for non-Grade A space in Hitec have also started inching up compared to last year. Limited supply and demand for independent buildings amongst medium scale IT companies are contributing to this growth.
  • The market has again started witnessing large sized built-to-suit commercial office space transactions of one million sft plus in each deal.
  • The CBD areas of Begumpet / Somajiguda / Banjara Hills etc. Also have seen better occupancy levels and rentals. In Begumpet the lone Grade A office space building recently quoted Rs. 105/-psf / mth as rental for a built-to-suit option. Office rental quotes have crossed the 3-figure mark. Clients are negotiating and not wasting time getting shocked.
  • On the retail front, deals are getting closed across all high street locations. Rents have remained stable or increased slightly. Malls also have higher occupancy levels. Given the buoyancy on the retail side, a major developer is planning 2 malls in Hitec, one of which would be the largest mall of Hyderabad.
  • Commercial developers in suburbs like Pocharam etc. are also looking at developing more space to cater to inquiries coming in.

The commercial market momentum augurs well for the residential market. Slowly but steadily the commercial market momentum will fuel the job market, which in turn will push the residential market up. Our understanding of the residential market is as follows:

  • An indication of residential market pickup is the number of new launches in any market, especially from developers from other markets.
  • In this month one of the largest developers of South India is launching 2 major apartment projects in Hitec. Two more prominent South India developers, launching residential projects in Hyderabad, are closely following them.
  • Why are these non-resident developers launching projects suddenly in Hyderabad after keeping their plans in abeyance for years? Obviously the market buoyancy in the commercial market has not escaped their view and probably they feel this is the right time to make an entry in this market.
  • Add to this, for the past few months, major developers from Pune, Bangalore and Dubai have been coming to Hyderabad every month to sell their inventory in this market. Some of them are coming regularly on a monthly basis, which leads us to believe that & response from this market is good enough to keep these developers interested in marketing other city projects in Hyderabad. Buyers from this city are buying properties across various markets.
  • The trust deficit has continued in the residential market since the projects, which have been languishing in the past, mostly continue to remain so. This includes quite a few flagship projects. This probably is the only reason why the residential momentum is taking more time than what most anticipated.
  • The local developers have also started reporting better numbers in the past few months. December was bad for all but January especially in Hitec was better, especially for ready-to-move-in units. Developers who sales numbers were close to zero have started reporting single digit sales and those who were in single digits have improved to double digits.
  • Developers across the city, both western and eastern side acknowledge that site visits, prospect list, negotiations, deal closures etc. across the market has improved. The current sales situation is far from ideal but make no mistake that the momentum, however small, has started.
  • In Hitec city prominent project rates now range from Rs. 5500 - 7000/- psf. The secondary market for some completed projects are sometimes better than builder sales. These rates had been ranging between Rs. 4500 - 6000/- psf 12 months back.
  • The only residential market, which continues to languish, is the luxury apartment segment in Banjara Hills. Any project, which quotes Rs. 10,000/- sft plus as basic price, is facing negligible sales. Some sales momentum is being witnessed in the sub Rs. 10,000/-sft range.

Let us also evaluate some of the surveys done by 3rd party agencies on Hyderabad, a couple of which is as follows:

  • A widely held view that Hyderabad's economic numbers suffered due to political agitations has been negated by a report by the US-based Brookings Institution, which states that the per capita income indicator showed better growth in Hyderabad in the 2009-14 period compared to Bengaluru.
  • Hyderabad is among the top preferred cities for employees seeking jobs as per findings of India Skill Report (ISR) complied by Wheebox, PeopleStrong, LinkedIn and CII.

Was pleasantly surprised to read a CEO's statement in the newspapers that his company's head count in Hyderabad will grow substantially, to quote him, "the city would attract more IT companies because it offers people with good skills at the right cost. Bengaluru and Mumbai are expensive."

Are we the cynical lot missing something? Are we not seeing the reviving of the potential of the city, which outsiders are seeing and actioning on? This situation reminds me of 2006-07 periods. Back then when we suggested that markets were overheated in terms of prices, nobody really listened. It was as thought the good run will never end. Similarly today when we suggest that markets will be promising / already improved, people remain skeptical. It is as though people expect the gloomy period to be a permanent feature. Nothing is permanent, neither good nor bad times. Since we have gone through so much of bad times (over 6+ years) hence it is a reasonable expectation that we can only see good times going forward.

In spite of the above analysis many remain cynical about the market. Builders are busier today than in the past so are the serious realtors / brokers, might I add, after many years. In every transaction there is a set of people who tend to guide the eventual buyer basically uncles, aunties, in-laws, out-of-work bankers etc. This set of people actually have no experience of the real estate market, but feel that post the new state formation everything will go bust. This attitude is actually hurting the market more than anything else. Some people just don't want to see or hear anything positive about this market.

Cynics have to realize that all of us are part of the market. We all benefit only if the market improves. The first step towards this is for us to share the correct picture about our market to potential buyers. The correct picture is that the commercial markets are up and residential is beginning to follow. Let us all start sharing the correct market perspective and hopefully the good times will come sooner.

written by :Mr. Aju Thomas

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CIRIL members are market leaders in their respective markets with an average 2 decades, commercial real estate market experience. Members have a transaction management portfolio of 30+ mn sft...

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