After achieving tremendous growth in the last five years, the real estate market in Hyderabad took a big hit due to the COVID-19 crisis.
According to Knight Frank India, Hyderabad recorded over a 40 per cent slump in both office and residential markets during the first half of 2020 (January-June).
It launched the 13th edition of its flagship half-yearly report - India Real Estate: H1 2020 - which presents a comprehensive analysis of the office and residential market performance across eight major cities.
According to the report, office transactions in Hyderabad saw a 43 per cent year-on-year decline to 2.2 mn sq ft. The city also saw a decline of 32 per cent YoY to 2.7 mn sq ft in new office space completions. Subdued transaction activity arrested the growth of weighted average transacted rentals in the Hyderabad office market to 3.3 per cent YoY.
The report stated that residential sales in Hyderabad witnessed a decline of 43 per cent YoY in H1 2020, whereas new project launches fell by 19 per cent YoY during this period. Weighted average prices recorded a 7 per cent YoY increase in H1 2020, which occurred in Q1 and then remained stagnant in Q2 2020.
Hyderabad's office market had seen a record growth of 172 per cent in its transaction volumes in the last five years. In 2019, the city recorded an all-time high of 12.8 mn sq ft in office transactions which was the second-highest amongst the top eight cities in the country.
The COVID-19 pandemic and the subsequent national lockdown appear to be the primary reasons for this poor performance. New completions took a hit with 2.7 mn sq ft of new office space entering the market in H1 2020 whereas 2.2 mn sq ft of transaction activity was recorded during this period, a 43 per cent YoY fall.
An immediate impact of the crisis was felt by the co-working industry and its absorption fell by a significant 75 per cent. The other services sector transactions were also adversely impacted.
On the other hand, Information Technology/ Information Technology Enabled Services (IT/ITeS) sector companies, the primary driver of Hyderabad's office market, contributed a significant 75 per cent in the total transactions pie for H1 2020. In terms of absolute volumes as well, the IT/ITeS sector transaction volume grew by 11 per cent YoY, from 1.5 mn sq ft in H1 2019 to 1.6 mn sq ft in H1 2020, and this despite the overall lower absorption this half-year. Further, the top three deals of H1 2020 in terms of the transacted area are all from the IT/ITeS sector.
"The impact of COVID-19 is evident with pre-commitment deals coming under pause mode. Also, there is imminent delay in upcoming supply due to the near-halt situation in construction activity. Mobilisation of labour and finance, adherence to strict COVID-19 protocols and timely government approvals are likely to be the challenges for developers," said Samson Arthur, Branch Director, Hyderabad, Knight Frank India.
According to the report, H1 2020 was amongst the lowest periods for the residential market in Hyderabad as sales hit a decadal low and launches grew but not at the 2019 rate of growth.
"Launches fell by 19 per cent YoY, this half-year. Key contributing factors to this fall include a halt in all construction activity during the lockdown period, low sales on account of market uncertainties, scarcer credit availability for developers, hike in prices of inputs such as steel and cement, and the lack of availability of construction workers in the post-lockdown phase."
Sales recorded a 43 per YoY fall with 4,782 units sold in H1 2020. This has been the lowest recorded sales figure for the city in this decade. Demand was strong until the pre-COVID period of January to March 2020 and was only restricted by the low availability of supply. Things took a sharp turn in the aftermath of the COVID crisis and the subsequent lockdowns.