Hyderabad’s real estate sector faces a challenging situation as the city contends with an unprecedented office space vacancy rate of over 18 million square feet (sft). This issue looms large even as the Chief Minister returns with ambitious investment pledges exceeding ₹31,500 crore from the United States, raising questions about whether these promises will help absorb the surplus office inventory.
The city’s office market, particularly in the tech-centric locales of Gachibowli and the Financial District, is experiencing a significant oversupply. Presently, nearly a dozen premium-grade office buildings—characterised by their prime locations and high-end amenities—remain largely unoccupied. These buildings, which span vacancies of between 1.5 million sft and 5 million sft each, contribute to a total office stock of 37 million sft within these key areas.
In recent years, the market has seen a surge in development activity, driven by pent-up demand following the pandemic. This has led to a glut of office space, with an additional 22 million sft of new supply currently under development. The oversupply is exacerbated by a combination of soaring land costs, expansive floor space index (FSI) allowances, and connectivity issues. The rapid escalation in land prices has prompted developers to focus heavily on commercial projects in pursuit of better returns, often resulting in overbuilt spaces that fail to meet industry standards, particularly those required by the IT sector. As a result, leasing rates have stagnated. Once commanding prices of ₹68 to ₹70 per sft, rates have now settled around ₹55 to ₹60 per sft, with some developers even dropping to ₹45 per sft to secure tenants. The sluggish leasing market reflects broader challenges, including insufficient public transport connectivity, which has hampered the attractiveness of these commercial spaces.
Real estate consultants have advised that authorities should consider halting approvals for new large-scale commercial projects for at least the next three years to prevent further exacerbation of the oversupply issue. This measure could provide the market with time to stabilise and address existing vacancies before additional space is introduced. In summary, Hyderabad’s real estate market faces a complex scenario where high vacancy rates and an abundance of office space create a challenging environment for developers and investors. The sector’s future will depend on strategic adjustments in development practices and improved infrastructure to better align supply with market demand.
