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  • GRID Policy likely to create 35-40 million sq. ft of IT supply in the non-western corridors of Hyderabad: JLL

    Published on March 30, 2022

    The city is the second-biggest market in terms of net absorption; leads in Grade A office space growth

    ·         Currently, Hitec City and Gachibowli together make 96% of the city’s Grade A stock

    ·         Hyderabad holds a 12.7% share in India’s Grade A stock and accounted for 25% of new supply

    ·         Western suburbs also account for over 2/3rds of all new apartment launches and 73% of all sales in the past three years

    Hyderabad is a city on the move. With Grade A office stock of 90.4 million sq. ft by end of 2021, the city is already the fourth biggest office market in the country, behind, Bengaluru, Mumbai, and Delhi-NCR. It also stands on the cusp of following these three cities to become a 100 million sq. ft office market before the end of 2022.

    Hyderabad leads all other major Indian cities in terms of intensity of office space absorption measured through the *SA Index. In fact, it is observed that the tech cities are ahead of the rest. Hyderabad tops with an average SA Index score of 24.1, ahead of Bengaluru (18.3) and Pune (16.7) in the last 12 quarters (2019-21). This shows the scale of new space absorption Hyderabad has witnessed for office space in the last few years.

    The city’s office market has performed significantly well over the past five years both in terms of office stock growth and increases in occupied space (net absorption basis). It is no surprise that Hyderabad has seen its Grade A office stock increase by 81% from 2016-to 2021, making it the fastest growing office market in the country.

    While Hyderabad currently holds a 12.7% share in India’s Grade A stock, it has accounted for 25% of new supply by adding 34.7 million sq. ft between 2019-2021, second only to Bengaluru. This is a testament to its emergence as a major office market over the past three years. During the same period, the city also was the second-highest contributor to the cumulative pan India office space net absorption with 22.6 million sq. ft, next only to Bengaluru (25.4 million sq. ft).

    A strong western quadrant flavor – Over 95% of office market activity and over 2/3rds of residential market action

    What stands out from relatively more granular analysis of Hyderabad’s office market is the concentration of office market activity in just two corridors in the Western quadrant – Hitec City and Gachibowli. These two submarkets have been the engines of growth, together making up 96% of the city’s Grade A stock, significantly contributing around 93% of the supply recorded over the past three years and accounting for 97% share in its occupier demand indicators (leasing activity, net absorption both). In fact, both these corridors are also going to account for a lion’s share of upcoming supply in the city as well. No wonder these corridors have also attracted the maximum interest from institutional investors as well.

    A similar trend is playing out in the residential market across Hyderabad too. The Western suburb residential corridor (primarily centered around the Hitec City and Gachibowli areas) has accounted for over 2/3rds of all new apartment launches in the past three years and 73% of all sales activity during the same period. While the reasons are quite easy to comprehend – excellent physical infrastructure, proximity to the main economic activity corridors, thriving social amenities; it does calls for the vision of a more holistic growth pattern across the city.

    Skewed mobility and the idea of Growth in Dispersion or GRID policy

    In recent years, the Northern (Kompally, Bachupally, Medchal) and Eastern suburbs (LB Nagar, Uppal, Pocharam) have seen a greater traction in residential launches. These two suburbs also being more affordable now house a significant portion of the IT workforce in the city. A corollary to the skewed office market growth is the inward traffic towards the west in the morning and consequently, the return movement in the evening. Increased concentration leading to congestion and skewed mobility patterns needed a rethink on the policy front.

     “The State Government has been quite far-reaching in its efforts to attract investments into the state and most of it finds its way to Hyderabad. The Government has also smartly identified the need for creating a dispersed development plan moving forward for the entire city. This has resulted in the Growth in Dispersion or GRID Policy. The primary idea being dispersal of the IT industry on the non-western sides of the city – largely north and in east, Uppal, and towards the Shamshabad / Airport growth corridor,” said Sandip Patnaik, Managing Director, Telangana and Andhra Pradesh, India, JLL

    GRID – the seed for IT industry dispersion to non-Western parts

    As part of the policy, 11 industrial parks have already been identified for conversion to IT Parks. All these are located along the Outer Ring Road (ORR) in the Northern and Eastern parts of the city. Additionally, the Government will construct an IT tower at Kompally in the North and an IT Park at Kollur on the North-Western part. Both these will be undertaken in the first phase along with three other industrial parks – two in East and one in the South.

    To incentivize participation from developers as well as occupiers, additional fiscal benefits are also envisaged under the GRID Policy.

    For IT/ITeS units, any of those already operational in an existing IT Park or even outside or located in an IT Park converted under the GRID guidelines, benefits over and above the existing ICT Policy have been announced. Some of them include:

    ü  Applicability of industrial power tariff and a further INR 2 per unit subsidy on the tariff for a period of five years and subject to a maximum incentive of INR 5 lakh annually on a reimbursable basis.

    ü  Lease Rental Subsidy of 30% for five years and subject to a maximum limit of INR 10 lakh per annum on a reimbursable basis. It equates to an additional INR 5 lakh per annum benefit and 5% subsidy over the existing one under the ICT Policy for an additional 2-year period.

    However, for already existing units, the benefits will be applicable on a pro-rata basis for the additional space taken up under the GRID guidelines.

    The GRID Policy has also identified additional benefits to be provided to those IT/ITeS units which are providing employment to 500 or more for a period of at least 3 years in the areas identified under the GRID Policy. These have been named Anchor Unit incentives.

    Suitable incentives for developers have also been envisaged under the policy. Developers must utilize at least 50% of the land for IT/ITeS purposes and the rest can then be utilized for commercial or residential purposes.

    The policy also has a sunset clause for IT/ITeS units envisaged within 5 years from the GRID Policy announcement with their five-year incentive period applicable from approval. For developers, incentives will cease when 200 acres of land is converted into IT Parks.

    The GRID Effect

    The GRID Policy defines a limit of 200 acres of land for conversion under GRID for developer incentives and outlines the policy norm that at least 50% of approved land may be utilized for IT/ITeS purposes.

     “With the unlimited FAR (Floor Area Ratio) rule applicable and assuming an average of 6-7 FAR which is currently the prevailing market practice in Hyderabad, an additional 35-40 million sq. ft of Grade A IT supply can potentially be added by developers in the non-Western parts of the city within the next five years.  This dispersion across the non-western corridors will allow Hyderabad to retain its cost-competitiveness among the top office markets in India. This number can also go up further given that developers may use more than 50% of the land for IT/ITeS purposes if the incentives and office supply trigger a sustained demand momentum in these non-western corridors. In addition, developers have the option to develop Non-IT commercial properties in the remaining piece of land that was allowed for residential/commercial purposes. This does not take in to account the lands owned by other entities including IT/ITES units where further development can be taken up under the policy,” Dr. Samantak Das, Chief Economist, and Head Research and REIS, India, JLL.

    In a major stamp of approval for the policy, Genpact and Ramky Estates recently entered into an agreement to develop 14 acres adjacent to the already existing Genpact campus in Uppal, the eastern part of the city. The agreement will create 2 million sq. ft of office space for Genpact and around 0.9 million sq. ft of residential development.

    The Northern and Eastern corridors are already emerging as the next hotbeds for the residential market with capital values in both at least 25-30% lower than the western suburbs corridor. They are expected to see combined new launches of anywhere between 10,000-13,000 residential units over the next 4-6 quarters, with the northern suburbs being more dominant. GRID can transform these corridors into more holistic economic-residential corridors.

    With the already existing metro connectivity (East-West, North-South) and the Strategic Road Development Plan (SRDP) improving road connectivity, it is only a matter of time that GRID has its desired effect of a more dispersed commercial development in the city, allowing for seamless connectivity while creating multiple economic corridors across the city.


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