For global firms, real estate costs will be lower or stable on the back of rupee-dollar dynamics in the medium term, which bodes well for the city.
Hyderabad has grown multifold over the years becoming a major tech and pharma hub in the country, or one should say in the world, given the way the IT exports are growing at about 18% (2019-20) and considering that city-based pharma companies are racing ahead in finding a cure for Covid-19 pandemic. As a city, it has bounced back from downturns over the past 10-12 years (Global Financial Crisis 2008-09, Separate Telangana movement, 2011-13) and we should expect a similar story in 2020-21 as well. In fact, the city is likely to come back much stronger this time around.
Hyderabad was, in fact, one of the best performing office markets across the world over the last 2-3 years. The city has gained a strong foothold in recent years besides Bengaluru with office demand doubling (from 5 million sf. to 10 million sf. levels) within 4-5 years. It has attracted new companies which were entering India for the first time and it is now home to biggest campuses outside US for 3 fortune 25 companies. Growth in the ecosystem driven by government support, incentives, affordability factors, a strong IT employee base (higher than 6 lakh), better and growing infrastructure has helped the city to thrive across all aspects in the recent past.
However, the Covid-19 situation has paused the momentum over the last 6 months. The growth in office demand carried through 2019 and Q1 2020 was blighted by the pandemic and lockdown which severely impacted the market activity. Near-term demand outlook for office space continues to be impacted by VUCA (Volatility, Uncertainty, Complexity and Ambiguity) in the wake of the Covid-19 pandemic and containment, infection peak and treatment shall continue to play their role in restoring economic activity and business confidence. A gradual recovery is expected from 2021 and growth will be stronger in 2022-23.
Office demand from small, medium enterprises and start-ups may decrease in the near-term but a return of demand from the tech segment driven by BCP spends and increased outsourcing is likely to be in line with gradual recovery in US & EMEA. Hyderabad is known to attract companies which are looking at long-term growth prospects given the conducive eco-system, cost arbitrage and better infrastructure. Growth in deep tech, healthcare, pharma and Hyderabad’s continued strength of talent and prospects for growth will drive the story over the next 3-5 years. Rupee depreciation, talent pool availability and likelihood of stable wages for the next 2 years are critical elements too. For global firms, RE costs too will be lower or more or less stable on the back of rupee–dollar dynamics in the medium term which bodes well for the city, where costs on a per sf. basis are at least 20-30% lower as compared to Bengaluru and Pune.
On the manufacturing front, the city is doing exceptionally well in recent times, where the state government has been a leading force in driving the momentum in industrial, logistics and warehousing sectors. It has made sustained efforts to establish an industrial base in Southern, Northern Hyderabad in areas such as Shabad, Kottur, Chevella, Chandenvelly, Hayatabad, Mucherla, Patancheru, Zaheerabad etc. Hyderabad is known as the bulk drug capital of the country and the state government is trying to establish the upcoming Pharma city (near Mucherla) as a global manufacturing centre by facilitating investments from major companies across the world. The government has relaxed various regulations across different sectors to attract investments in sectors such as pharmaceuticals and life sciences, electronics and electrical machinery, handlooms and textiles. Committed efforts from the government are evident as companies are coming forward to set up a base in Hyderabad.
For the firms that are likely to relocate from China, Hyderabad definitely is in a sweet spot considering a strong policy support from the state government, an ecosystem with increasing business friendliness and improving ease of doing business and importantly, the cost arbitrage factor.
Regarding residential, Hyderabad is perhaps the only city that is bucking the trend like it did during demonetization. Property prices across India have stagnated and sales have dropped significantly over the last 3 months. However, it is not so gloomy in Hyderabad where headline prices are still stable, much lower as compared to other cities and buyers, investors are still scouting for good deals during the period of uncertainty.
With reduced home loan rates, queries from investors and buyers have actively gone up in select cases to seize the opportunity of ongoing deals. Overall, a cautious optimism prevails in the market which could lead to a rise in demand for new homes in short to medium term with the availability of large discounts.
With focus on flexi work and WFH, those living on rent and not impacted by salary cuts/job losses could look at starter homes or upgrades with a BHK+study or home+office concept. Dispersed offices, flexible workplace policies around WFH will could spur housing demand on city peripheries and create more ‘suburbanisation’ trend given the prices have increased steeply in the core areas impacting affordability of end-users in the recent past.
WFH will be a trend that will remain relevant in the near future as companies try to reduce expenses, but it may not last long as it is not an optimal solution for productivity, innovation, performance and employee engagement. Some companies may adopt a rotational WFH policy as workplace dynamics change going forward, but end-users shouldn’t construe it as an important factor while making a decision.
The above article originally appeared on The Times Of India on 15th August 2020.
