A massive 8.9 million sq ft of space was transacted during H2 2019 in Hyderabad and it was the market that experienced the most transaction activity.
The domestic office space market, which to a large extent has been insulated from the economic slowdown, witnessed a largely eventful 2019 as supply and leasing hit record levels owing to increased demand from AI and data security firms in tech-centric markets like Hyderabad and Bengaluru. However, the sector also saw rentals decline for the first time in 18 quarters, since July-December 2015.
“The Indian office space market has been largely insulated from macro concerns that plague the economy and has only gained traction in 2019 due to the large infusion of supply that came online during the year. The segment that was starved of supply saw a record 61.3 million sq ft attain completion during the calendar year, which was evenly matched by an unprecedented 60.6 million sq ft of transactions,” Knight Frank India managing director Shishir Baijal told FE.
The second half of 2019 was a landmark period as the Hyderabad office market overtook Bengaluru to post the highest transacted volumes among the eight markets under coverage, he added.
As per Knight Frank’s latest real estate report, the annual supply volumes exceeded transactions for the first time since 2013.
“This strong positive story, however, did not extend to rental growth, which slipped into negative territory for the first time since H2 2015. Albeit marginal, the weighted average rental level for eight cities under coverage fell 1% for H2 2019. The drop in weighted average rentals is not necessarily due to increased supply but should rather be attributed to significantly greater weightage of the much lower-priced markets of Hyderabad and Chennai in the overall transactions,” the report revealed.
The Hyderabad office market had an exceptional 2019, accounting for 12.8 million sq ft in terms of transactions, nearly twice its previous annual high. A massive 8.9 million sq ft of space was transacted during H2 2019 in Hyderabad and it was the market that experienced the most transaction activity. Bengaluru, which has dominated this decade in terms of transaction volumes, came in second with 7 million sq ft during H2 2019.
The IT-ITeS sector’s share in transactions has shown signs of weakening in recent periods due to macro headwinds in the form of a slowdown in spending, as well as an inclination to insource by USA and several European countries.
However, a recent surge in hiring since end-2018 due to an increase in demand for higher-end jobs in domains like AI and data security increased requirements. Subsequently, H1 2019 saw share of IT-ITeS grow and the momentum sustained in H2 2019 too. It accounted for 41% of transacted volume in H2 2019 against 31% a year-ago.
In contrast, the BFSI sector, which has been reeling under the shadow of the NBFC crisis and credibility issues with some banks, saw its share dip from 18% in H2 2018 to 16% during H2 2019.
Other services sector’s share (excluding BFSI and IT-ITeS) fell from 36% in H2 2018 to 32% in H2 2019 largely due to comparatively limited activity by e-commerce companies.
However, co-working companies continued to take up more space in H2 2019 and constituted nearly 39% of the total area transacted by the other service sectors compared to 23% in H2 2018. Similarly, their share of total transactions grew from 8% in H2 2018 to 12% in H2 2019. Of the 4.1 million sq ft transacted by co-working players during H2 2019, a significant 34% was concentrated in Hyderabad and 26% in the NCR.