Office leasing in Hyd up 19.6% in first quarter of 2022: Report

Hyderabad: The office market in the city recorded gross leasing activity of 1.90 million square feet(msf) during the first quarter (Q1) of 2022, registering a quarter-on-quarter (q-o-q) growth of 19.6% (35.3% year on year(y-o-y)), according to Cushman & Wakefield report.

According to the report, demand was largely driven by fresh leasing (1.07 msf) which recorded a 36% growth on an annual basis. IT-BPM remained the largest driver with nearly 50% of the leasing share followed by flex space operators at 16%. Madhapur accounted for a 79% share in the overall demand.

Despite healthy leasing, net absorption stood at 6,00,000 square feet due to rising vacancies driven by consolidations and portfolio restructuring by some larger tech occupiers. Leasing activity is expected to continue in the short-term as nearly 3 msf of new leases are in the final stages of negotiation and are expected to complete in Q2.

In Q1 2022, nearly 2.8 msf of new office space entered the market, which recorded a q-o-q decline of 38% and a y-o-y decline of 23%. Core submarkets of Madhapur such as Raidurg and HITEC city accounted for 61% of the new supply (1.72 msf). The addition of this large-scale new supply has pushed the vacancy rate in Madhapur above 10% for the first time in over a decade.

Also, the report said that nearly 7-8 msf of new supply is expected in Madhapur over the next 9-12 months. As such, vacancy levels are expected to remain above 10% levels despite a healthy demand in the short term. Gachibowli, too, has witnessed a new supply of 1.1 msf and the vacancy has reached 26.7%. Nearly 8.5 msf of new supply is expected in Gachibowli for the rest of 2022 thus pushing the vacancy rate to about 29-30% by Q4.

Asking rentals have remained stable in the city since Q1 2020 and is expected to remain stable for the rest of 2022 despite the addition of a large-scale new supply. Nearly 20-22 msf of new supply is expected in Madhapur and Gachibowli together over the next 18-24 months suggesting a continued rise in vacancy rates.

"The market remains tenant favourable, and developers continue to remain accommodative. The majority of the landlords across the city are flexible with leasing terms and are providing additional incentives. A correction in asking rentals in Gachibowli is also likely as availabilities rise and more new supply enters the market in the short to medium term. As such, it is an opportune time for tenants that are looking for large-scale expansions and consolidations in line with long-term business growth and space strategies," read the report.