Hyderabad: Grade A Office
Demand
Hyderabad witnessed a strong increase in transaction volume in 4Q09 which triggered optimism in the office market. However, negative absorption due to consolidation or downsizing by occupiers increased vacancy levels to double-digit values across all micro-markets. There were instances where occupiers moved out of the CBD to relocate to the suburbs for cost efficiency. In 2009, office market demand, which is highly dependent on the IT/ITES industry, witnessed new drivers coming from other industries, such as pharmaceuticals, telecommunications and infrastructure.
The CBD and SBD of Hyderabad witnessed significant improvement in demand in 2009 as compared with 2008. Overall, net absorption in the CBD and SBD was 55,229 sq ft (5,131 sqm) in 2009. However, the market sentiments remained low as the vacancy level increased in 2009 as compared to 2008 due to negative absorption, occupier relocation and completion of new buildings at low occupancy. The overall vacancy increased to 16.58% in 4Q09 from 6.71% in 4Q08. Key transactions in the CBD and SBD in 4Q09 include:
SKS Microfinance leasing 80,000 sq ft (7,432 sqm) in Ashoka Raghupathy Chambers, Begumpet, CBD; Dhanush Infotech leasing 30,000 sq ft (2,787 sqm) in Laxmi Towers, Secunderabad, CBD; Zeta Technologies leasing 24,000 sq ft (2,230 sqm) in a commercial building at Punjagutta, CBD; WTTL leasing 10,000 sq ft (929 sqm) in Gowra Trinity, Begumpet, CBD; SQL Star leasing 15,000 sq ft (1,393 sqm) in a commercial building at Banjara Hills Road No 14, SBD
Supply
Hyderabad witnessed an overall supply of about 4 million sq ft in 2009, and the total city office stock stood at 18.5 million sq ft. A majority of the new supply became operational in the suburban micro-markets of Hitec City and Gachibowli. In 2009, the CBD witnessed the completion of two buildings with a total built-up area of 28,243 sqm; while the SBD did not witness any new supply. Many buildings that were expected to be operational in 2009 remained under construction due to lack of demand.
Asset Performance
Rental values across all micro-markets in Hyderabad corrected by 20.0–25.0% in 2009 compared with 2008. The markets witnessed a sharp decline in rental and capital values in 1H09; after which, the rate of decline slowed down in 3Q09 and stabilised by 4Q09. The rental values in CBD and SBD witnessed a correction of 21.0% and 20.0%, respectively, in 4Q09 as compared with 4Q08. While the capital values declined by 25.0% in CBD and 24.0% in SBD in 4Q09 as compared with 4Q08.
12-Month Outlook
Although the demand condition is expected to improve in 2010, the oversupply situation in the city will continue to keep rental values under pressure until end-2010 in the suburban districts. However, we believe that rental values have bottomed out and any further major correction is unlikely. Hyderabad will witness tough competition in terms of demand from cities such as Chennai and Pune, which are also offering space at competitive rentals.
Hyderabad: Retail Market
Demand
The market sentiment improved in 2009 from 1H09 to 2H09. Malls in the city witnessed an increase in footfalls from 3Q09 onwards, which continued until 4Q09, primarily led by festive season. The demand for space in high-streets dominated the demand for mall space in 2009 as they offered good visibility and cost efficiency. High-street landlords are providing underground parking facility and amenities like escalators in their new projects to attract retailers. The major stores that were operational in 2009 on the high-streets were Westside and Landmark at Somajiguda and Landmark at Banjara Hills.
In addition, many luxury and premium national and international retailers started operations in the city with the opening of GVK One Mall at Banjara Hills. The vacancy rate increased to 3.73% in 4Q09 from 2.20% in 4Q08. The net absorption in the prime central micro-market in 2009 was 890,155 sq ft (82,698 sqm).
Key transactions in 4Q09 include:
Jack & Jones leasing 5,000 sq ft (464.5 sqm)on the high street at Jubilee Hills Road No 36, Prime Central; KFC leasing 2,300 sq ft (213.6 sqm) on the high street at Dr A S Rao Nagar, Suburbs; McDonald’s leasing 1,085 sq ft (100 sqm) at Inorbit Mall, Hitec City, Prime Suburbs; and Wild Craft leasing 470 sq ft (43.66 sqm) at Inorbit Mall, Hitec City, Prime Suburbs.
Supply
Hyderabad witnessed the opening of two malls in 2009. GVK One Mall at Banjara Hills in the Prime Central micro-market and Inorbit Mall at Hitec City in the Prime Suburban micro-market and added 0.9 million sq ft to the total stock. Both these malls are landmark properties in the city as GVK One Mall houses luxury and premium brands, while Inorbit Mall is the first mall in Hitec City. Both malls became operational with high occupancy as significant space was pre-leased in 2007-08. Some of the malls that were expected to be operational in 2009 were postponed due to the slow demand.
Asset Performance
All of the micro-markets witnessed a decline in rental values owing to the demand slowdown. Rental values in the prime central micro-market declined by 30.0% y-o-y in 4Q09, which is about 40.0% from the peak in 3Q08. Capital values remained stable in 4Q09 after declining by 31% from the peak in 3Q08 until 1H09.
12-Month Outlook
Overall, high streets will continue to dominate the market as compared with malls in the medium-term. The supply of malls will remain subdued even in 2010, and the city will witness about 0.72 million sq ft of supply both including the Prime Central and Prime Suburbs micro market. Rental values are expected to stay range bound as demand and supply conditions remain poor in 2010.