Office space crunch in Hyderabad likely to push lease rates north

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The severe shortage of office space in Hyderabad, pegged at a low 9% in a recent industry report, could led to a steep rise in the city’s commercial leasing rates this year, predict market analysts. Only behind Bengaluru (4%) and Pune (5%), the vacancy levels in Hyderabad, at present, stand way lower than other metro cities like Mumbai, Delhi, Chennai and Kolkata, according to a survey conducted by Jones Lang LaSalle, the global real estate services firm. This is indicative of a “good supply-demand equilibrium“ in the IT hub, compared to other markets in the country, the report highlights.

“In fact, the 9% availability is inclusive of areas where there is space but new lessees aren’t willing to move. If one considers the Hi-Tec City stretch alone, which sees maximum demand, the va cancy wouldn’t be more than 5 to 5.5%,“ said Sandip Patnaik, managing director (Hyderabad), JLL.

The per square feet leasing rate in this belt, restricted at Rs 48 until a year ago, has now touched Rs 60. “This is certain to be revised to a minimum of Rs 63 per square feet in 2017,“ Patnaik added.

This massive supply crunch -particularly of quality office space -is unlikely to ease before next year, industry insiders predict.“There is no respite in sight for tenants at least till the end of 2018, when we can see some larger space options entering the market,“ said Veera Babu, managing director (Hyderabad) of Cushman & Wakefield, another real estate services company. He pegged the current vacancy at an even lower figure ­ about 3%.“Most of the upcoming space is already pre-leased, thus pushing rents upwards,“ he reiterated.

Reason for this acute shortage? The prolonged slump in the property market, say observers. “It was only 2015 onwards that the industry started to look up again. The projects announced then are still under construction and will take at least another year or two to be ready,“ Patnaik said explaining how land acquisition alone takes 12 months to complete.

Telangana government officials say that the city is all set to usher in anybody willing to pick up office space here. “In the next one year, Hyderabad will have an additional 10 million square feet of office space ready to occupy,“ said Jayesh Ranjan, the state IT secretary.

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