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ICRA forecasts a decline in Hyderabad's Grade A office occupancy by approximately 500 basis points to 81.0%-81.5% by March 2024, down from 86.0% in March 2023. This expected drop is attributed to a record supply addition of about 21.5 million square feet for FY2024. Despite this, ICRA remains optimistic about India's overall commercial office sector, citing the country's appeal as a hub for global capability centres and its attractive blend of skilled talent and competitive rental rates.
In light of recent evaluations, ICRA foresees a downturn in the occupancy rates of Hyderabad's Grade A office spaces. By March 2024, occupancy is anticipated to fall by approximately 500 basis points, landing between 81.0% and 81.5%. This prediction contrasts with the March 2023 figures, which sat at around 86.0%.
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One of the primary drivers of this anticipated decline is the record-breaking supply addition anticipated for FY2024, amounting to roughly 21.5 million square feet (msf). Between FY2017 and FY2024, the office supply in Hyderabad burgeoned at a compound annual growth rate (CAGR) of about 13%. This growth rate trumps the approximate 7% CAGR witnessed by the top six Indian cities. By March 2024, Hyderabad's share in the total office supply from these top markets is projected to climb from 14.2% to 15.5%.
However, it’s not all bleak. Following the lockdown in FY2021, Hyderabad's office market rebounded with robust net absorption rates in the subsequent two years, thanks largely to new lease deals and the resumption of in-office work. As a result, by March 2023, vacancy rates had improved, dropping from 16.5% to 13.8%.
Hyderabad's North-west region dominates the city's Grade A office market, contributing 88-89% of the total supply. Hitech City, Gachibowli, and the Financial District emerge as the top players, accounting for three-quarters of the total office supply. Although the Hitech City area commands higher rents, its accessibility via public transport makes it a favourite among tenants.
Significant contribution to Hyderabad's Grade A office supply is attributed to the city's top 10 developers, who, as of June 2023, delivered 60-61% of the total supply. Moreover, seven of these ten developers enjoy occupancy rates surpassing 85%, indicating a sustained preference for their properties.
Concluding on a broader note, ICRA remains optimistic about India’s commercial office sector. While an influx of office supply might challenge Hyderabad's occupancy rates in 2024, India’s commercial office sector retains its appeal on a broader scale, promising continued growth in the medium to long term.
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