IT, captive centres cushion Hyderabad’s office market during pandemic

Hyderabad, one of the preferred destinations for companies looking for space in India, managed to ride the pandemic largely unscathed, thanks to the segment that turned the southern city into a key office market—IT and captive centres.

A compilation of data from two key micro-markets in Hyderabad, Hitech City and Gachibowli, shows only a marginal increase in vacancies with the demand for Grade-A office space remaining stable.

Prominent office projects analysed account for 70% of Grade A inventory with two buildings completed in 2020 and two others with pre-commitments expected to be completed in 2021 and 2022, respectively. These projects had a 69% share in gross leasing activity recorded in 2020. Pre-commitments accounted for 61%, followed by fresh leasing at 33% and term renewals at 6%.

Vacancies rose in key certain projects including Mindspace in Hitech City, and Salarpuria Sattva and Cyber Pearl in Madhapur and TSI Waverock in Gacibowli.

Vacancies rose on account of new completions as well as some occupier exits and deal cancellations of older pre-commitments, according to data collated by Cushman & Wakefield. Yet, the property consultant said, overall vacancies remained low.

“We have not seen any reduction in terms of the base rental but there is more flexibility in terms of payment and landlords are offering incentives such as extended rent-free periods, lower security deposits,” Veera Babu, managing director-Hyderabad at Cushman & Wakefield, told BloombergQuint. Vacancies have increased marginally and there has not been a massive give up of space though the new leasing has slowed down, he said. “Companies are still figuring out the best strategy as the situation around Covid keeps evolving.”

The Exits
While there were exits in the third quarter of 2020, according to data, they were fewer than fresh releases, pre-commitments and term renewals.

Among the companies that gave up space include Facebook, Cognizant and Neudesic. Companies like Deloitte, Amazon, E&Y and Axis Cades either moved to other buildings or to their campuses, the data shows.

Hyderabad Leasing Market: Key Exits

Long-Term Contracts

Most of the fresh leases and renewals are long-term contracts with a minimum tenure of five years or more. JPMorgan Services India Pvt., IBM India Pvt., Dell India are among companies that took fresh leases or extended the existing ones.

Hyderabad saw a large share of pre-commitment deals owing to the new supply coming into the market, while current vacancy levels limit immediate space occupancy in key markets, according to Cushman & Wakefield. For instance, Google and Wells Fargo have pre-committed space in the upcoming buildings. Verizon, Mindtree and Dell took up fresh leases.

Hyderabad market has over 60 million sq ft of operational commercial real estate space and the plan was to add another 40 million sqft by 2022, but due to the current situation that plan seems deferred as most of the developers are taking a cautious approach, said Babu.

“Hyderabad market has an added advantage over other big markets like Bangalore, Mumbai, Delhi in terms of occupancy costs, infrastructure, customer/investor centric government and quality of life,” Babu said. “We do expect that in the post-Covid world where location does not really matter, many companies might look at setting up their offices in Hyderabad.”

Hyderabad’s Lower Occupancy Cost