Hyderabad: Grade A Office
Demand
The Hyderabad commercial office market posted a strong increase in demand in 2010 with the foray of new occupiers such as United Health Group, JP Morgan Chase and Facebook, and the expansion of existing tenants including TCS, Accenture, Google, Mindtree and Cognizant. Majority of the leasing transactions were recorded in the peripheral districts of Hitec City and Gachibowli. During the year, the city also witnessed strong pre-leasing activity. Demand of SEZ space in the city increased as compared to IT Parks in 2010. At an overall level, demand in Hyderabad was buoyant in 2010 as compared to 2009.
Transaction volume increased in Hyderabad in 4Q10 after a nominal slowdown in 2Q10 and 3Q10. Hyderabad’s overall net absorption reached 4.7 million sq ft in 2010, exceeding the pre-crisis net absorption in 2008. The highest net absorption was recorded in 4Q10, which was at 2.3 million sq ft. Demand in the CBD and SBD also improved significantly over the year, witnessing a total net absorption of 93,000 sq ft (8,639.9 sqm) in 4Q10 and 300,970 sq ft (27,961 sqm)for the entire 2010. Meanwhile, with increased leasing and limited supply in the CBD and SBD, the overall vacancy decreased to 6.7% in 4Q10 from 16.6% in 4Q09.
Key transactions in Hyderabad in 4Q10 included:
- Just Dial leasing 20,000 sq ft (1,858 sqm) in Roxana Towers, Begumpet, CBD;
- Accenture leasing 175,000 sq ft (16,448.9 sqm) in TSI Wave Rock in Nanakramguda, Gachibowli; and
- TCS leasing 150,000 sq ft (13,935 sqm) in Q City in Gopanpally, Gachibowli.
Supply
In 2010, the overall supply in Hyderabad was recorded at about 3 million sq ft, taking the total grade A stock in Hyderabad to 21.7 million sq ft as of 4Q 2010. Most of this supply was located mainly in the Hitec City and Gachibowli suburban micro-markets. During the year, the total stock in the CBD and SBD reached 180,000 sq ft (16,722 sqm). The CBD witnessed a supply of 80,000 sq ft (7,432 sqm) with the refurbishment of Ashoka Raghupati Chambers in 2010, while the SBD had 100,000 sq ft (9,290.3 sqm) with the completion of two commercial buildings.
Asset Performance
Rental values across all Hyderabad micro-markets remained stable throughout the year after the market corrected by 23–32% in 2009 from its peak in 2008. Capital values remained unchanged after correcting by almost 38% in 2009 from its peak in 2008. The yields remained stable at 10.7% in 2010 as the rents and capital values remained stable over the year 2010.
12-Month Outlook
Hyderabad is expected to witness increase in pre-leasing activity in the projects by reputed developers in 2011, as most of the ready- to-occupy buildings in these projects are already absorbed. For example buildings such as K RC Building No 11 are completely leased by JP Morgan Chase and it is expected to commence operations in 1Q11. As a result these projects will witness an increase in rents in 2011. The projects in the emerging markets such as Uppal, Pocharam and Shamshabad are also expected to witness good volume of leasing in 2011.
Hyderabad: Retail Market
Demand
Retail real estate demand in Hyderabad was dominated by high streets in 2010 as the supply of malls remained low during the year. Market sentiment improved in 2010, as retailers look at increasing their footprint in the city. Reliance and Arvind Mills opened new retail outlets during the year. Wal-Mart forayed in the city and leased a store of 45,000 sq ft in Kukatpally and a 4-acre land parcel at Moulali for its cash-and-carry stores. Similarly, Metro opened its sixth cash-and-carry store in India and a second one in Hyderabad at Uppal.
The city’s major malls witnessed strong leasing activity. Inorbit Mall and GVK One Mall have reached almost 100% occupancy levels. The vacancy rate decreased to 3.2% in 4Q10 from 4.3% in 4Q09. Net absorption in 2010 was 339,000 sq ft (31,215 sqm). Most of this net absorption is due to the pre-leased space in malls that commenced operations in 4Q10.
Key transactions in 4Q10 include:
- Symphony Food Court leasing 14,000 sq ft (1300.6sqm) at Maheshwari Mall Koti, Prime Central;
- Converse leasing 1,000 sq ft (92.9 sqm) on the high street at Banjara Hills, Prime Central;
- Lilliput leasing 3,700 sq ft (343.74 sqm) on the high street at Punjagutta , Prime Central; and
- Lilliput leasing 3,600 sq ft (334.45 sqm) on the high street at Vanasthalipuram, Prime Suburbs.
Supply
Hyderabad witnessed the opening of two malls in 2010: Maheshwari Mall (200,000 sq ft) at Koti and MPM Bonsai Mall (120,000 sq ft) at Himayat Nagar in the Prime Central micro-market. Both malls are located in the conventional retail hubs of the city and had a good volume of pre-leased space when they started their operations. Adlabs and Big Bazaar are the anchor tenants in Maheshwari Mall, while MPM Bonsai Mall has Brand Factory as its anchor.
Asset Performance
Rents in all micro-markets remained stable in 2010 after witnessing a correction of 40% in 2009 from its peak in 4Q08. Capital values also remained stable after witnessing a correction of 36% in 2009 from its peak in 4Q08. High streets did not witness any increase in rents or capital values in 2010. However, as there is low supply in the market, landlords of prime properties on major roads of Banjara Hills and Jubilee hills demanded high rents as compared to market average.
12-Month Outlook
Demand is expected to continue to improve in 2011. However, as there is no mall supply scheduled to come on-stream in 2011, the demand for high-street space will dominate. Retailer’s such Reliance and Pantaloons are planning to expand further in the city in 2011. The under-construction retail projects expected to become operational in 2012 are likely to witness good pre-leasing volumes in 2011 as retailers will capitalize on prevailing low rents. Rents and capital values are expected to remain stable until 1H11.
