Sandip Patnaik, Managing Director – Hyderabad, Jones Lang LaSalle India
Residential Real Estate
Residential property buyer sentiments in Hyderabad have improved considerably over the last three quarters. There has been a gradual but certain increase in residential demand and absorption. That said, the market is still a long way from touching the 2007- 2008 levels.
There has been a marked increase in activity by developers scouting for suitable land parcels for residential development. More than anything else, this is a convincing indication that they want to proceed with their expansion plans and not hold on to their land, which had more or less been the trend since 2008-2009.
We definitely expect an increase in PE investments into residential real estate projects in Hyderabad in 2012. Until now, institutional capital flows had been slow in Hyderabad when compared to some of the other cities. The reasons for this were specific to the period:
- In 2007-2008, the main reason was high valuations
- In 2008- 2010, the global financial crisis was clearly the culprit
- In 2010- 2011, the state-level political scenario depressed institutional investment sentiments
At this point in time, the real estate valuations are once again making sense, and developers as well as end users are once again in action mode. There is every reason to believe that the political scenario will take a turn for the favourable for PE investment in 2012-2013.
On the more sombre side, it also looks like residential supply is likely to outstrip demand in the foreseeable future. There is clearly a supply–demand mismatch, and unsold inventory is quite high. This fact will definitely have an impact on residential property pricing in the mid-term. That said, there are also going to be selective price rises for projects in high-demand locations having good amenities.
Commercial Real Estate
The commercial real estate sector in Hyderabad has reacted very differently from the residential sector over the past few years. In 2008-2009, the Grade A office space absorption in the city stood at approximately 2.2 million square feet. Thereafter, in 2010 and 2011, Hyderabad saw absorption of 4.4 to 5.0 million square feet year on year. This clearly indicates that corporate client did not let the political scenario upset their expansion plans in Hyderabad. In fact, all our large corporate clients such as Cognizant & Accenture have expanded their office bases over last 2 to 3 years.
What is worrisome is the fact that very few new companies have set up their base in Hyderabad over last couple of years. Notable exceptions would be JP Morgan and Facebook, along with a handful of others. Almost 90–95% of the city’s commercial real estate absorption has been via expansion of existing companies.
In 2012, the lack of SEZ supply will result in city absorption being lower than in 2010 and 2011. There is a huge supply of STPI/Commercial space available for corporates amounting to approximately 4.5–5.0 million square feet, but as 50-60% of the absorption is in SEZs, landlords and developers owning STPI/Commercial spaces might feel the pressure of unsold and un-leased inventory.
