After a prolonged period of sluggish performance, Hyderabad, the state capital of Telangana, is expected to witness rapid growth in terms of real estate with increase in demand supported by infrastructure development and investment from IT companies.
In Hyderabad, the IT/ITES (information technology and information technology-enabled services) sector employs over 360,000 (2014–15) people. With an output of US$74 billion, Hyderabad is the fifth-largest contributor to India’s overall gross domestic product (GDP). Hyderabad, which is the largest city in the state of Telangana, has a population of about 9.1 million (according to 2011 Census), making it the sixth most populous city in India. It is a major tourist destination with ancient monuments, forts and modern parks.
The Hyderabad real estate sector had witnessing sluggish growth till 2015 due to frequent political unrests. However, after the formation of the state of Telangana, the city’s real estate sector is showing signs of growth. Hyderabad is re-positioning itself as a business destination and technology companies are being attracted for investment. Its existing and proposed infrastructure projects such as 20 flyovers, Outer Ring Road (Phase 1 & 2A is operational), expressways and mass rapid transit system (MRTS) will help create demand for real estate across the city over the medium to long term.
Reviving Residential Sector
Residential markets across Hyderabad are witnessing a gradual recovery after a long drawn political unrest. Weak sentiments had dented the markets for over three years till the bifurcation of the state, leading to an over-supply situation with a low absorption rate of 15%. The total inventory of residential units is 18,000+, with an unsold capacity of 15,000+ units.
Launches of new residential projects in Hyderabad are slow, with only the western sub- market showing some activity. The new government is trying to instil a positive sentiment in the market with a slew of infrastructure initiatives and policies. It is expected that the market will remain stable with a positive bias, with existing stock witnessing a stable off-take across the micro-markets. In light of the anticipated pick-up in office absorption and job creation, sales in the residential sector are likely to pick up.
Areas such as Gachibowli, Kondapur, Miyapur and Manikonda in the western and eastern parts of the city continue to dominate with affordable developments in the price range INR 2,800-6,000/sq.ft., while Banjara Hills and Jubilee Hills lead the premium segment of the city with a price range from INR 8,000-14,500/sq.ft. Maximum absorption is being witnessed in the western and eastern sub-markets, with a trend of approximately 3,500 to 5,500 units per annum. Well-known developers in this micro market include Aparna, My Home, Manjeera, SMR, Sri Aditya, Purvankara, Mantri, Mahindra Lifespace, Incor, Lodha, Pacifica, Prestige and Total Environment, who are providing gated community apartments as well as villa projects with very good amenities.
Resurgence of Commercial Real Estate
Commercial leasing and absorption of Grade A commercial spaces in Hyderabad has picked up to 1.2 million sq. ft., and vacancy dropped to 8% in 1Q 2016 from 10% in 2015. This comes on the back of IT, digital and e-commerce companies announcing huge investment in Hyderabad. Major players like Amazon, Google, Deloitte, UHG, JP Morgan, Qualcomm, Accenture, Hyundai Mobis, CDK Global and Uber are taking up commercial space this year. The average lease rental in Hyderabad is recorded to be INR 55/sq.ft./month, and capital values are at INR 4,800 – the lowest when compared to all other commercial and IT destinations of the country.
HITEC City is the most attractive commercial destination of Hyderabad, with an office concentration of 27 million sq. ft. (including campuses). It accounts for about 60% of Hyderabad’s total office stock, followed by Gachibowli with a 30% share. HITEC City is witnessing the highest absorption rate in the past few years, and is expected to do display similar absorption in both these sub-markets until 2018. HITEC City and Gachibowli command an average rental rate of INR 48-55/sq.ft./month.
Locations such as Gachibowli, Madhapur, HITEC City, Kondapur and Nanakramguda are expected to witness strong demand as the city emerges as a stronger business destination, with nominal rental values. Further, these locations are being developed as commercial hubs with quality residential supply. CBD and SBD are the developed commercial corridors of the city, with a forecast of an increase in supply by approximately 1.5 lakh sq. ft. of office space by 2018.
Overall, the city is seeing very favourable growth prospects on the back of these factors, as well its low cost of living when compared to other Indian metros, good quality of life, a rapid pace of infrastructure development and a proactive government.
Author: A. Shankar, National Director & Head of Operations – Strategic Consulting, JLL India. JLL is a global real estate consultancy firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. (The article has been edited with inputs from PaisaWise..com)