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Hyderabad's Grade A office space market faces rising vacancy rates, projected to reach 24-24.5% by March 2026, up from 14.1% in March 2023, according to ICRA. Despite a 14% CAGR in office supply between FY 2017-2024, demand, driven primarily by IT and financial services, remains constrained at 9-12 million sq. ft. annually. Key areas like Hitech City are maintaining stable vacancies at 9.5-10%, while Gachibowli and the Financial District may see vacancies soar to 25-30%. As Hyderabad's share of India's office supply grows from 15% to 17%, stakeholders must adapt to tenant preferences for sustainable, tech-enabled spaces in a competitive market.
The office space landscape in Hyderabad is experiencing significant changes, with projections indicating a decline in occupancy rates for Grade A office spaces. According to recent analysis from ICRA, occupancy is expected to drop to approximately 75.5-76% by March 2026, down from around 86% in March 2023. This shift is largely attributed to a surge in supply that is set to outstrip demand, leading to increased vacancy rates. Advertisement
Hyderabad has seen a robust growth in office supply, with a compound annual growth rate (CAGR) of about 14% from FY 2017 to FY 2024. This growth rate surpasses the 7% CAGR seen across six major office markets in India. As of March 31, 2024, Hyderabad accounts for roughly 15% of the total available office supply in these markets, a figure that ICRA anticipates will rise to 17% by March 2026. Anupama Reddy, Vice President at ICRA, noted that FY 2024 marked a record high supply of approximately 19 million square feet in the city, with expectations of a similar trend continuing through FY 2025 and FY 2026.
Despite the increase in supply, net absorption-referring to the amount of space leased-remains projected between 9-12 million square feet annually. This disparity is expected to lead to a significant rise in vacancy levels, with estimates suggesting they could reach 24-24.5% by March 2026, up from 14.1% in March 2023. This trend positions Hyderabad to potentially have the highest vacancy rates among India's top six cities, surpassing even the Delhi NCR region.
The demand for office spaces in Hyderabad is primarily driven by the IT, technology, and financial services sectors, alongside a growing interest from global and domestic companies. Peush Jain, Managing Director of Anarock Group, highlighted that the increasing corporate activity and economic growth in the region could help absorb some of the excess supply. He noted that while vacancy rates are rising, Grade A offices that emphasize sustainability and technology are likely to attract tenants and command higher rental prices.
Geographically, the North-West region of Hyderabad dominates the Grade A office market, accounting for 88-89% of the total supply as of September 30, 2024. Key areas like Hitech City, Gachibowli, and the Financial District are particularly noteworthy, comprising about 70% of the city's total office space. Hitech City is expected to maintain stable vacancy levels between 9.5-10.0%, as it remains a favored location for tenants. In contrast, Gachibowli and the Financial District may see vacancy rates soar to 25-30% by March 2026, due to the concentration of new supply in these areas.
In summary, while Hyderabad's office market is poised for significant growth in supply, the challenge of increasing vacancy rates may reshape the dynamics of commercial real estate in the city. Stakeholders are advised to consider the evolving landscape carefully, as opportunities may arise for those willing to adapt to the changing demands of tenants. As the market continues to evolve, the focus on sustainability and modern amenities will be crucial in attracting and retaining occupiers in this competitive environment.
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