Hyderabad: Office space absorption hits Covid-19 bump, 50% dip feared

HYDERABAD: The city’s office space absorption that had crossed 10 million square feet (sft) by the end of 2019, could fall by over 50% this year, say industry insiders.

With the lockdown putting brakes on several businesses across the globe, they said that companies will be wary of leasing new space in 2020, particularly during the next two quarters. The result– a dip in rentals of at least 10% to 15%.
The existing rate of leasing in Hyderabad ranges between Rs 55 and Rs 65 per sft with some Grade A spaces attracting as much as Rs 75 to Rs 80 per sft. “Office space leasing is likely to slow down due to tenants reprogramming their office needs. There’ll also be a temporary pause on fresh supply,” stated a report by Savills India, an international property consulting firm headquartered in the UK. According to the firm, the office market will recover only in 2021.
“It will be a tough 12 months post Covid-19 for commercial real estate,” said Vishal Goel, partner, Cerestra Advisors, adding, “Startups and co-working spaces will suffer most and big firms will postpone leasing space till end of the year as their priority will change. Also, most of the workforce has been trained to work from home now. This will impact long-term demand prospects of commercial offices in emerging economies.”
However, expressing optimism, realtor Shailender Singh, director of Proppro, who also foresees an initial drop in pace in the industry, said he feels office space will remain a safer asset class for investors. “The projected supply in Hyderabad was anyways coming in a phased manner over three to five years and many large companies eyeing Hyderabad were looking at occupation starting end of 2020 and over the next three to four years...There are clients who are already progressing with their discussions on expansion or office space requirements,” he said.
Retail, on the other hand, will see a slow down for sure as theatres, food courts and anchor stores that pull large crowds will see customers shying away for a while unless it’s a guaranteed safe environment, he added.