Office supply in Hyderabad to outstrip demand, vacancy may rise to 24 pc by Mar 2026: ICRA

Supply is expected to significantly outpace net absorption. Office supply grew at a higher CAGR (compound annual growth rate) of about 14 per cent during FY2017-FY2024 for the Hyderabad market, compared to a CAGR of around 7 per cent for the top six office markets in India.

Hyderabad accounts for around 15 per cent of the total available office supply from the top six markets as of March 31, 2024, which ICRA expects would rise to 17 per cent by March 2026.

Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings at ICRA, said: "Hyderabad is the only prominent major Indian city that has an unlimited FSI rule. Taking advantage of such norms, some developers are undertaking large speculative construction (without near-term visibility on tenant leasing), resulting in a huge demand-supply mismatch."

Hyderabad witnessed an all-time high supply of around 19 million square feet in FY2024, the highest in its history and the largest yearly addition in India across locations, she said.

This high supply trend is expected to continue through FY25 and FY26 with an estimated new supply of 17-20 million square feet each year, the agency said. "However, net absorption is expected to remain in the range of 9-12 million square feet each year, resulting in a steep increase in vacancy levels to 24-24.5 per cent by March 2026 from 14.1 per cent as of March 2023 (19.3 per cent as of September 2024)," Reddy said.

Peush Jain, MD-Commercial Leasing & Advisory at Anarock Group, said the rise in the supply of office spaces in Hyderabad is on account of the growing interest from the GCCs (Global Capability Centres) and domestic companies.

"The IT/ITes, BFSI and flex spaces have been the key drivers of demand in the city and with growing corporate activity and economic uptick, the city has the potential to absorb the excess supply. The rising vacancies may not be a cause of concern as Grade A offices with a focus on sustainability and technology will not just attract occupiers but also command premium rentals," Jain said.