Hyderabad and Bangalore: A Tale of Two Real Estate Markets

The real estate markets in Hyderabad and Bangalore, two major cities in India, have been experiencing significant changes in supply and demand dynamics. Let’s take a closer look at these two markets and the opportunities they offer for investors and occupiers.

The city of Hyderabad has witnessed a substantial increase in supply since 2019, with approximately 28.7 million square feet of new office space expected to be added by 2025. This surge in supply is attributed to the unlimited Floor Space Index (FSI) policy in Telangana and the anticipation of IT demand spillover from cities like Bangalore. However, the vacancy rate in Hyderabad has risen to around 24%, mainly due to slower uptake caused by global headwinds. The majority of upcoming supply is concentrated in Gachibowli, where higher vacancy levels (~40%) have kept rental rates and capital values in check. Despite this, Gachibowli remains attractive for cost-sensitive occupiers due to its lower rentals and quality office spaces. For investors interested in Hyderabad, it is advisable to focus on pre-leased office opportunities in HITEC City, particularly in institutional quality buildings with long lock-in periods or completed fitouts by tenants.

Bangalore continues to be a preferred destination for real estate investment and offers a stable market with favorable demand-supply dynamics. In the next few years, approximately 22.9 million square feet of fresh supply is expected to come online across the city. The Outer Ring Road (ORR) micro-markets, particularly in the north and south, continue to attract robust traction, housing Fortune 500 MNCs, global capability centers, and IT giants. The ongoing metro connectivity work is expected to further drive demand in these areas. However, the average monthly rental values have already reached around Rs 100 per square foot, making the market entry relatively expensive for cost-sensitive occupiers. Whitefield, the second-largest market in Bangalore, has seen renewed interest with the introduction of metro connectivity to the central business district (CBD). With average rents below Rs 60 per square foot per month, Whitefield has attracted fresh occupier interest and spillover demand from ORR markets. It is recommended for CRE investors in Bangalore to focus on pre-leased office opportunities in ORR and Whitefield markets, where institutional supply is coupled with good tenant profiles. Meanwhile, the Peripheral North market should be approached with caution due to its high vacancy levels and slower demand uptick.

Overall, while Hyderabad and Bangalore offer distinct opportunities for real estate investment, investors should carefully consider the specific market dynamics and tailor their strategies accordingly. By closely analyzing the supply and demand dynamics, rental rates, and tenant profiles, investors can make informed decisions that maximize their returns on investment in these two thriving cities.