Hyderabad’s office market growth slowed down by the Covid crisis: Knight Frank India

Hyderabad: Knight Frank India today launched the 13th edition of its flagship half-yearly report - India Real Estate: H1 2020 - which presents a comprehensive analysis of the office and residential market performance across eight major cities for the January-June 2020 (H1 2020) period. According to the report, office transactions in Hyderabad saw a 43% YoY decline to 0.2 mn sq m (2.2 mn sq ft) in in H1 2020. The city also saw a decline of 32% YoY to 0.2 mn sq m (2.7 mn sq ft) in new office space completions. Subdued transaction activity arrested the growth of weighted average transacted rentals in Hyderabad office market to 3.3% YoY in H1 2020.
The report stated that residential sales in Hyderabad witnessed a decline of 43% YoY in H1 2020whereas new project launches fell by 19% YoY during this period. Weighted average prices recorded a 7% YoY increase in H1 2020 which occurred in Q1 and then remained stagnant in Q2 2020.
Samson Arthur, Branch Director – Hyderabad, Knight Frank India said, “Hyderabad’s office market recorded its highest take-up in 2019 driven by expansionary demand, mainly of IT/ITES and co-working sector. The momentum continued into mid-March 2020 resulting in a positive rental outlook even at end of H1 2020, although rate of growth has receded. The impact of Covid-19 is evident with pre-commitment deals coming under pause mode. Also, there is imminent delay in upcoming supply due to the near-halt situation in construction activity. Mobilisation of labour and finance, adherence to strict COVID-19 protocols and timely government approvals are likely to be the challenges for developers.
On the demand side, large occupiers are looking to recalibrate their space needs. The focus on employee health, de-densification and higher hygiene standards will help revitalise the need for quality space take-up in the long term. The pandemic and subsequent lockdown has slowed the pace but not the sentiment for grade A developers in Hyderabad. However, market has turned in tenants’ favour and likely to remain so upon return of normalcy. Proactive engagement with occupiers, flexibility in renegotiations and softening of rates can help retain and attract occupiers.
Once markets ease in, commercial leasing activity is likely to pick pace. While there is a seeming resilience in certain micro markets of Hyderabad we are watching closely the amount of sub-lease and surrendered space that is being added to the market. This offers an opportunity for occupiers, mainly driven by tech and co-working companies, to snap up quality space at flexible terms ahead of the market recovery.”
Samson Arthur, Branch Director – Hyderabad, Knight Frank India said, “Nearly four months, since the first lockdown due to outbreak of COVID-19, we have started to see some return-to-work mode in Hyderabad. State government through GHMC made the most during the lockdown by completing major road and infrastructure works thus enhancing the image of Hyderabad. While housing activity appears uneven we expect the recovery in residential markets relatively quicker. The asking prices have remained stable though launches took a hit and sales went down. However, the market hopes that prevalent demand, shortage of ready inventory coupled with lower interest rates offers sufficient incentive to the genuine homebuyers. These are challenging times for the real estate sector and until the Covid infection rates plateau or a vaccine is found, there will be uncertainty. Hyderabad remains a strong consumer driven market and less speculative. While job stability and economic factors could certainly impede the revival in the short term, many would continue to bet on the long term attractiveness of the city to remain positive.”