Lockdown fallout: Hyderabad office space transactions drop in first half of 2020

Hyderabad: Call it the fallout of lockdown, office space transactions in Hyderabad has dropped to 0.3 million square meters in the first half of 2020 from 0.4 mn sq meter in the corresponding period of 2019.

Last year, Hyderabad ranked second in All India office transactions with 1.2 million square meters. Data provided by Knight Frank has revealed that Hyderabad improved its ranking from 6th position in 2015 to second in 2019. In 2015, office space transaction was only 0.4 million square meters.

Bangalore retained the top position of office transactions for the last six years. In 2019, office transactions reached 1.4 million square meters.

Office transactions in Hyderabad, however, declined in the first half of 2020 with only 0.3 million square meters compared to 0.4 mn sq meters in the corresponding period of 2019.

In 2019, the office space transaction has increased by 82 percent, but it has decreased by 43 percent in the first quarter of 2020.

"Hyderabad's commercial real estate market has seen a record growth of 172% in its transaction volumes in the last five years. In 2019, the city recorded an all-time high of 1.2 mn sq m (12.8 mn sq ft) in office transactions which was the second-highest amongst the top eight cities in the country. After the record high of 0.6 mn sq m (6.9 mn sq ft) in the second half of 2019, 2020 was slated to be as promising, if not more," said the Frank Knight report.

The report noted that Hyderabad's office market performance during the first half of 2020 has been subdued. The Covid-19 pandemic and the subsequent national lockdown appear to be the primary reasons for this poor performance.

New completions took a hit with 0.2 mn sq m (2.7 mn sq ft) of new office supply entering the market in the first quarter of 2020. This 32% year over year (YoY) slump in first-half 2020 is a result of the pending paperwork owing to the lockdown.

According to the report, an immediate impact of the Covid-19 crisis was felt by the co-working industry across the country. With an increased ratio of work-from-home employees and with social distancing being the need of the hour, the demand for these community-modeled workplaces took a hit.

In Hyderabad, transaction activity of co-working players had been on the rise for the last one year and the quantum of their office space absorption almost doubled between H1 2019 and H2 2019. As the co-working sector recorded a significant 75% YoY slump in H1 2020, the overall transaction volumes of the Hyderabad office market felt the blow too.

Information Technology / Information Technology Enabled Services (IT/ITeS) sector companies, the primary driver of Hyderabad's office market contributed a significant 75% in the total transactions pie for H1 2020.

In terms of absolute volumes as well, the IT/ITeS sector transaction volume grew by 11% YoY, from 0.1 mn sq m (1.5 mn sq ft) in H1 2019 to 0.2 mn sq m (1.6 mn sq ft) in H1 2020, and this despite the overall lower absorption this half-year. Further, the top three deals of H1 2020 in terms of the transacted area are all from the IT/ITeS sector.

On the other hand, Manufacturing, Other Services sector and Co-working industries witnessed a significant fall in their respective transaction volumes in H1 2020 which also brought down their share in the total transactions pie.

"The complete lockdown during the last week of March and the whole of April brought all construction activity to an absolute halt. Further, post lockdown, labor availability on construction sites has become a huge challenge for developers as most of the migrant laborers have returned to their hometowns. Both these events will together result in project delays, estimated presently at 8-10 months. This, in turn, will impact new completions that are lined up," said the report.