Mint Explainer: Will ghost offices soon haunt Hyderabad?

According to data from Anarock Property Consultants, Hyderabad is set to account for 31% of new office supply in 2022-23, the highest among the top seven cities. Bengaluru, India’s largest office market, had a share of 26%. In office leasing, however, Bengaluru was ahead of Hyderabad. Analysts say when Hyderabad overtakes Bengaluru in terms of new office space despite sluggish demand from tenants, it will be more of a problem than a benefit. So why can’t Hyderabad stop building the office?

How does new supply compare with leasing?

Property consultant CBRE estimates that around 13.8 million sq ft of office space is set to be added in Hyderabad in 2022, compared to 10.9 million sq ft in Bengaluru. On the absorption front, Hyderabad leased out just 7.2 million sq ft, while Bengaluru topped leasing with 17.2 million sq ft. In 2019, for example, Hyderabad leased out 13.4 million sq ft of office space. Gave. space and added 13.7 million square feet of new supply.

There has been a steady decline in the pace of leasing in Hyderabad – which can be attributed to muted demand – but the supply of new office space remains high. This has created a unique case of oversupply in the southern city. “Leasing is expected to decrease significantly from 2019 to 2022 in the city. There is a lot of construction, which has led to a lot of new supply of office space. As a result, around 35-40 million sq ft of office space is lying vacant in Hyderabad as there is no such demand,” said Ram Chandanani, managing director, advisory and transaction services, CBRE India.

case of over supply

Hyderabad is probably the only Indian city to have an ‘Unlimited Floor-Space Index’. FSI is the maximum permissible floor area that a developer can build on a particular piece of land. It varies from place to place under the rules and regulations set by the city administration. The FSI in Hyderabad can go up to 13 and averages around 6-7, which is higher than the national average, which is between 2 and 3.

This has prompted developers to build large office complexes, some with two to three million square feet of standalone buildings. It wasn’t even considered unreasonable until the tech sector started slowing down and companies stopped taking up new space.

Hyderabad vs Bengaluru

Bengaluru attracts demand from many sectors, led by information technology (IT), startups, consulting and analytics. Despite the city’s various infrastructure challenges, it continues to be a top destination for companies due to its talent base and tech ecosystem. The Hyderabad office market, on the other hand, has been largely dependent on the tech sector, and thus has been badly hit by the slowdown.

CBRE’s Chandanani says that unlike Hyderabad, builders have stopped creating speculative office space in Bengaluru. The average size of office buildings or blocks is also smaller at around 500,000-750,000 square feet.

Bengaluru, where about 6% of office supply is vacant, is also a circular city. This means supply is fairly well distributed, while Hyderabad is confined to clusters like Gachibowli and Hitech City. However, Hyderabad scores better on cost – office rent is about 20% cheaper than in Bengaluru or Gurugram.

weak point of view

According to CBRE estimates, Bengaluru accounted for 3.5 million sq ft of the total 12.6 million sq ft of leased office space among top Indian cities in January-March 2023. Hyderabad leased out around 1.4 million sq ft during this period. Concerns about the growth in office-space leasing remain and 2023 is expected to be a slow year for India’s commercial real estate sector in general.

“The global slowdown in major economies of the world cast a shadow over the Indian office market in the second half of FY23. Prashant Thakur, Senior Director and Head of Research, Anarock Group, said, major headwinds including trends in layoffs by corporates and the global recession will continue to drive office space growth in India. IT/ITES companies are reducing their business.

Kotak Institutional Equities said in a recent report that existing vacancies are mainly in Special Economic Zones (SEZs), which may be difficult to fill till regulatory amendments come in. IT companies comprise a major portion of current businesses. Cognizant is taking the lead in rationalizing office space requirement in these key Indian cities, the report said. The government’s delay in finalizing amendments to SEZ rules has created uncertainty for office-space owners, who face rising vacancies in SEZs as leases expire and tenants shift to non-SEZ locations. have become

Updated: June 13, 2023, 04:20 PM IST