DQ Estate: Hyderabad continues to be a high-value IT hub

Hyderabad, which hosts a number of renowned Indian and global IT firms, has off late seen a downtrend in its growth story due to a couple of issues that tarnished the citys image. Despite its ability to offer several benefits to the corporate sector besides the state-of-the art office space, it is the least hot favorite of IT companies now. The last well-known company which set up its support center in the city is Facebook, after which there is hardly any well-known name to reckon with that the city can be proud of and boast of to attract those considering options.

While recession ended for the rest of the country in the late 2009, the city is still wading through the hard times and experiencing slow demand. The ones who have suffered most are the real estate developers who were betting big on IT parks. Demand for office space has remained slack. This has allowed many to forecast that the city was running into sunset before reaching maturity. But whats the truth? Has the city lived its life? Does the slow demand mean that Hyderabad has lost its charm as a city which had everything from infrastructure to skilled manpower? To find answers, Dataquest has tried to go through facts.

Does the Ghost Called Telangana Still Haunt?

Real estate developers who have built up office and IT SEZs seem to have suffered a lot due to issues such as Telengana and political instability in Andhra Pradesh. But analysts see that the city is slowly emerging through these issues. Over the years, Hyderabad has attracted key investments on IT and ITeS. The impact of social issues and political issues is going down. The market for IT SEZs is becoming stronger, says P Venugopal, development commissioner, SEZ (IT/ITeS), Andhra Pradesh and software technology parks of India. According to the industry peers, companies like Microsoft which has its largest R&D facilities in Hyderabad outside its Redmond campus, and others like Google and Oracle are still fueling demand and working a benchmark for new companies which are willing to enter the city.

The local government is also optimistic that dispels all doubts that Telangana had raised. In January this year, the former Andhra Pradeshs information and communication technology secretary, Ratna Prabha had said the exports might will cross `40,000 crore if the industry as a whole does well. According to her, IT exports from Andhra Pradesh may surpass the level of 2008-09 when IT exports were close to `33,000 crore. However much depends on the realty prices in the prime locations.

Real Estate Demand as Indicator

But if a study is to be believed, the city has positive sentiments though incomparable with emerging cities such as Pune and Chennai. The study on Hyderabads real estate sector Hyderabad--the Star Still Shines by Jones Lang Lasalle thus underlines that the good infrastructure and availability of skilled manpower supported with cost effective availability of real estate has revived the office market sentiments in the post recession period. It further gives examples of multinational corporate firms such as United Health Group, JP Morgan Chase, Facebook, TCS, Google, Accenture, and Cognizant that have either forayed into the city or expanded their operations.

Furthermore office market witnessed the highest ever absorption in the city in 2010 which reached about 5 mn sq ft. Pre-leasing remained strong in under construction buildings. Campus developments also witnessed a strong growth. For instance, Infosys started their new campus at Pocharam in 2010. Hyderabad had a total stock of about 34 mn sq ft which includes about 13 mn sq ft of IT campus and built to suit buildings by the end of 2010. There is of course an uptrend in the real estate market post-recession driven by corporate sector mainly IT companies. The study is a testimony to this, believes Trivita Roy, manager, research and REIS, Jones Lang Lasalle.

SEZs vs STPI

In Hyderabad, companies are opting for Special Economic Zones (SEZs) over Software Technology Parks of India (STPI). This fact is well mentioned in the study. According to the report, SEZs are being more preferred over the STPI for the tax sops. However the supply of SEZs is limited. Hyderabad is expected to witness a temporary under supply situation in 2011. The study expects that the supply will bounce back in 2012 and meet the rising demand for SEZs locally. The absorption is expected to strengthen in the city as IT industry is expected to see strong growth and moreover ITeS, KPOs and other sector business will drive the demand for office space in the city, adds Roy.

STPI has lost attractiveness because of the declining tax sops. Export oriented IT firms are thus on the lookout for SEZs. SEZs do offer more tax sops to companies than SEZs. Although government is trying to keep both of them lucrative for businesses, STPI is losing its sheen because of the sunset loss of tax benefits, says Venugopal.

Hence the biggest challenge in front of realtors is to come up with more SEZs. Lack of office space is the biggest constraint for companies which are already in the city. They are not able to expand their operations and scale up their presence. It is yet to be seen how soon the sector meets this demand, says Roy.

Green Building Trends Catching Up

In addition, corporate firms are opting for green buildings to save on their operational costs and also meet their CSR commitments. Thus developers in Hyderabadunderlines the studyare actively adopting new technologies such as energy efficiency and eco-friendly technologies in the buildings or developing green buildings to reach out to these requirements. Hyderabad has about 1.8 mn sq ft of LEED certified green office building space which is expected to increase in the near future.

Rising Investor Sentiments in IT SEZs

Till late 2010, there was hardly any positive sentiment among the investors in Hyderabad. But the Ascendas Trust is planning to acquire 5 buildings in Hyderabads IT hub to capitalize on the growth of Indian IT industry and has given a new dimension to the Hyderabads investment sentiments. Investors are betting big on IT SEZs and have started putting in their money in the market, says Venugopal.

The strong trend of pre-leasing and leasing in the city by IT/ITeS has again started giving fillip to the market. The experts are also hopeful that this will also result in demand for houses by employees of these firms.

The local realtors are worried with the challenge posed by cities such as Chennai and Pune where of late a lot of IT/ITeS companies have set up their shops. It is true that Chennai and Pune are attracting a lot of IT companies and startups, but Hyderabad will not lag in the race. The reason is that it has a state-of-the-art infrastructure, a lot of coming infrastructure projects and above all, the talent pool that others may lag, exclaims Roy.

Most analysts still believe that unlike other cities in India, Hyderabad is still much more affordable. The property prices in the prime precincts of Hyderabad are relatively less when compared to other cities. They believe that these pluses among others show a silver lining in the cloud.

Lets Build a Future Hyderabad

IT/ITeS industry has played a pivotal role in driving growth in Hyderabad. But the challenges other than market may hamper its business-friendly image. Recession was a global phenomenon influenced by global forces. But it is the governments duty to handle political and social chaos creating a positive sentiment amongst the investors and entrepreneurs. To dispel doubts and skepticism, the local government will compliment Hyderabad by also developing tier-2 IT towers in Vishakhapatnam, Warangal, and Tirupati.