Leasing activity improves with y-o-y growth of 111.4%

• The Hyderabad office market witnessed a quarterly gross leasing of 2.89 million sq ft in Q1, marking a y-o-y increase of 111.4% compared to the same period last year.
• IT/ITeS (50.9%) led Q1 leasing, while Telecom, Healthcare-Biotech, Real Estate & Construction accounted for 14.8% and Flex for 12.5%. Net absorption rose 40.4% YoY to 2.18 million sq ft, with Hitec City (50.9%) and Gachibowli (46.8%) as the dominant contributors.

Q1 supply observed in the Hitec City submarket

• With two new completions, a total supply of 1.53 million sq ft came on stream in Q1, with the entire contribution coming from the Hitec City submarket.
• The overall vacancy rate in Q1 dropped 60 bps q-o-q to 25.7%, as vacancy rates tightened in the Hitec City submarket due to rising demand.

Hitec City and Suburbs Others drive rental growth in Q1

• While rents rose across all submarkets, Hitec City saw the highest rental growth at 10.0% q-o-q, followed by Suburbs Others at 7.3%.
• Capital values at the overall city level kept pace with rents, keeping the yields steady.

Outlook: Strong demand to keep vacancy under check despite robust supply

• An annual supply of 15-16 million sq ft is anticipated in the near future, with Gachibowli leading the way, creating a supply overhang in this submarket. The Hitec City submarket is expected to see much lower vacancy given strong occupier demand in this corridor.
• With continued occupier demand across IT/ITeS, BFSI, manufacturing, healthcare and flex operators, market activity is likely to remain strong in the near-term.