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Hyderabad to witness 8.0 mn sq.ft. office space leasing in 2022: Savills India report

Savills

February 9, 2022: Having established itself as one of the top-3 office market in the country, Hyderabad is expected to witness 8.0 mn sq.ft. of office space absorption in 2022, comparable to the pre-pandemic leasing activity. The city is estimated to have pre-commitments of 1 mn sq. ft. in buildings nearing completion and has also seen large space enquiries by existing occupiers, according to International real estate advisory firm Savills India.

Stock               AbsorptionSupply
20212022F20212022F20212022F
73.5 mn sq. ft.85.2 mn sq. ft.5.7 mn sq. ft.8.0 mn sq. ft.8.6 mn sq. ft.10-12 mn sq. ft.

Outlook for Hyderabad office market

  • 2022 is likely to see 8.0 mn sq.ft. of gross absorption across various micro markets.
  • IT, BFSI and coworking segments are likely to remain the mainstay of office space demand in the city
  • Flexible spaces are expected to thrive by reinventing and repositioning themselves. Complementary benefits and value-added offerings can help it achieve a much bigger share in 2022
  • Rentals are likely to remain range bound in the near term. However, rental arbitrage in premium buildings of the city as compared to similar premium buildings in other cities, is expected to drive the space uptake by global captive clients in Hyderabad
  • Vacancy levels are expected to be in the 15-20% range across the major suburban locations
  • Given the trend of employees returning to offices, adherence to pre-committed leases and overall uptick in business sentiment and leasing activity, developers are expected to infuse 10-12 mn sq. ft. of supply in the market in 2022
  • Grade-A stock of commercial office space in the city is expected to reach close to 85 mn sq. ft. by the end of 2022
  • A major portion of incremental supply is expected to be in SBD-II which primarily consists of Gachibowli, Nanakramguda, Financial District and Manikonda

Key Highlights of 2021 for Hyderabad office market

  • The year 2021 culminated with transaction activity of 5.7 mn sq. ft.; a marginal 4% YOY increase in demand. Almost 70% of the deals in 2021 were large-sized (100,000 sq. ft. or more) as compared to 63% in 2020. Similar to 2020, more than 90% of the leasing activity was concentrated in Secondary Business District I (SBD-I)
  • IT and allied sectors had a 58% share of demand in 2021, a decrease from 78% in 2020. The financial services sector contributed to more than 20% of office space demand in the city, at approximately 1.2 mn sq. ft. in contrast to negligible activity in 2020
  • Of the 5.7 mn sq. ft. of leasing activity in 2021, approximately 1 mn sq. ft. has been from the coworking segment. This increase from 0.7 mn sq. ft. in 2020 corresponds to YOY growth of around 50%. The segment has recorded more than 15,000 seats in 2021
  • The city witnessed completions of about 8.6 mn sq. ft. in 2021, a growth of 11% as compared to the previous year. In terms of micro-market-wise additions, incremental supply was concentrated in the Secondary Business Districts of the city, with SBD-II and SBD-I having a share of approximately 58% and 42% respectively
  • As incremental supply outpaced demand for office space in the city by more than 1.5 times, vacancy levels rose from 10.8% in 2020 to 15.0% in 2021
  • Average rentals in the city are reported to have moderated by up to 8% in 2021 as compared to 2020
Sesha Sai

Sesha Sai, MD, Hyderabad, Savills India said, “Proactive government policies, excellent infrastructure and talent availability have contributed towards the rise of the city. Similar to 2021, IT, BFSI and coworking segments will lead the office space demand in the city.”

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