Foreign funds into Hyderabad realty jump 7X in 5 yrs

Hyderabad: With increased traction from global investors, foreign funds are flowing rapidly in the commercial real estate market ofHyderabad. The foreign capital flows in the city real estate sector jumped nearly seven times to $1.7 billionin April 2017 -June 2022, when compared to $256.5 million in the preceding five-year period, says Colliers, a diversified professional services and investment management company.

Over the last five years, regulatory reforms such as implementation of Real Estate Regulatory Authority (RERA) and Goods & Services Tax (GST) have infused increased levels of confidence amongst investors, giving a fillip to foreign investments. Aided by proactive government policies, excellent infrastructure and talent pool, Hyderabad has been the fastest growing commercial real estate market in India.

"Hyderabad currently consists of a total Grade A stock of 87.6million sft, out of which only 16 per cent is vacantas of Q3 2022. The city has 36.8million sft under construction buildings that are expected for completion from Q4 2022 – 2024. Ageing Grade A office stock of about 16.2million sft has an opportunity to be upgraded," Vimal Nadar, Head of Research at Colliers India, told The Hans India.

He said, "The upgradation of outdated office buildings will make them more investible, which can beincluded into real estate investment trust (REIT) portfolio. It also helps developers and investors to attract more occupiers, leading to rental appreciation, lower vacancies, lower operational costs, increase longevity and performance ofthe building and enhancing employee experience."

Post Covid, there is a huge decline in office space absorption in Hyderabad. The Grade A office absorption in the city was 8.2 million sft in 2019 and it remained 5.9 million sft in both 2020 and 2021. It has reached to only 5.6 million sftduring this year-to-date (YTD). However, Colliers India is optimistic about the outlook of the commercial real estate market in the city.

Vimalanticipates a rise in commercial space leasing activity in the city with the growing demand for the upgraded office buildings. He further said, "Hyderabad continued to gather pace in office space demand. During YTD 2022, the city experienced increased traction from technology and engineering & manufacturing sectors accounting for 64 per cent share in total leasing."

"Post-pandemic, developers and investors have become more cognizant about the efficiency of the project. It has become pivotal for them to understand the associated risks and upsides of any prospective project. Stakeholders can risk-proof their projects by making a small investment in due diligence and maximise their returns on investments," he informed.

Real estate due diligence can capture a slice of the 300-million-sft pie of existing and upcoming commercial office buildings. The top six cities (Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, Pune) together see a strong pipeline of office buildings in the next 2-3 years, with about 180 million sft of Grade A office stock in various stages of construction.

At the same time, these top cities have Grade A office buildings of about 120 million sft that can be refurbished. Developers and investors are seeking professional expertise to evaluate their upcoming projects and solutions for the upgradation of their existing ageing buildings, as per Colliers' latest report 'Technical Due Diligence: Risk-proofing Realty'.

The reportshowcases how due diligence can help various stakeholders take precautions to safeguard their investments. It ensures that a property is developed as per prescribed norms at a time when there is increased focus on aspects related to sustainability (ESG) and health and wellness. The assessment further provides a pathway to reduce uncertainties and maximize the potential profitability of a project. "Investments in real estate are growing, with increased traction from global investors. In the last five years, foreign capital flows in real estate hiked three times to $24 billion, compared to the previous five-year period. As the country is seeing a spurt in investments, there is an increased demand for state-of-the-art real estate projects," says Jatin Shah, Managing Director, Technical Due Diligence, Colliers India.

"The cost of conducting due diligence of a property is less than 0.3 per cent of the project cost. As developers and investors venture into new geographies and asset classes, due diligence can help them risk-proof their prospective projects. The benefits will outweigh the costs incurred as it can save the stakeholder from substantial loss of money, time, and legal hassles," he adds.

For under-construction buildings, developers, investors and even occupiers can avail of due diligence services to get a better return on investments, timely risk mitigation and greater transparency during the transaction process. The top six cities have about 120 million sft of ageing Grade A stock, which is more than 15 years old.

Due diligence can help developers and landlords understand the scope of upgradation and achieve higher traction from occupiers, especially in the prime micro-markets of major cities. The experts can provide developers and investors with recommendations to overhaul their older properties. Upgrading old office buildings will help in gaining more traction from occupiers, increase the value of the building.