Hyderabad office market witnesses contraction

The Hyderabad office market witnessed a contraction in absorption levels in the current financial year as the impact of unfavourable global economic conditions and regional political upheaval were felt across sectors, according to Knight Frank, an independent real estate consultancy.

Occupiers remained cautious about their expansion plans and refrained from making fresh investments. Consequently, the market vacancy level inched up in the four quarters ending Oct-Dec 2012 .

"The first three quarters of FY 2013 saw absorption numbers fall almost 30 per cent compared to the same period in the previous financial year," the consultancy firm stated in a report released on Wednesday.

However, the report said, decline in office space transaction had not affected rentals yet as the weighted average rental rates had stayed sticky over the past year.

Though the manufacturing sector has gained significant ground as its share has grown to 15 per cent in Oct-Dec 2012 quarter compared with 10 per cent during the same quarter in the previous year, the IT/ITeS sector continues to be the primary driver for office space demand in Hyderabad taking up approximately 72 per cent of the total absorption pie.

Hence, the report points out that subdued growth from the IT/ITeS industry will result in strong headwinds against rental growth during the coming four quarters.

Expansion activity from corporate houses already having a footprint in Hyderabad and for whom relocation is a harder option to exercise, will sustain the market but be hard pressed to stop vacancy levels from rising in the face of increasing supply, it cautioned.