The Star Capitals. Hyderabad & Amaravati. The Star Capitals Hyderabad & Amaravati 1

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1 The Star Capitals Hyderabad & Amaravati The Star Capitals Hyderabad & Amaravati 1

2 Preface Resilient and Growing! The bifurcation of Andhra Pradesh and formation of state of Telangana led to rise of a new era of development in India. Both the states have topped ease of doing business ranking by World Bank in 2016 with their business friendly policies. The capital cities of both these states Hyderabad and Amaravathi respectively are rising as two star capital cities in India. Hyderabad, the capital city of recently formed state of Telangana has shown remarkable resilience. The city is back again on the investment radar and attracted investments from Altico capital, Blackstone, GIC, Piramal group etc. already. Global corporates such as Apple, Google, Ikea, Uber etc have entered Hyderabad and instilled confidence amongst corporates occupiers and developers. Hyderabad is expected to cross its historic office rental peaks of 2017 by 2018 driven by strong demand from corporates. Rents in the prominent office locations of Hitec city and Gachibowli markets are expected to rise faster into the range of 6-8 per cent (y-o-y) in next one year. Good office leasing is likely to trigger the development of the retail and residential sectors in the city. The recent inauguration of metro rail will further strengthen the infrastructure of the city. Meanwhile Amaravati, the new capital of Andhra Pradesh is setting its growth milestones with new development strategies on land-pooling and development of human resources. This green field development is laying its foundation to be a world class city in a decade. Here s a report that attempts to highlight the development of Hyderabad and Amaravathi as they etch new paths of growth. Best regards, Ramesh Nair CEO & Country Head JLL India Ramesh Nair 2 The Star Capitals Hyderabad & Amaravati

3 Hyderabad ` Empowering the city s administration/policy Hyderabad stood fifth in the JLL City Momentum Index, which tracks a city s short-term socio-economic and real estate momentum in combination with measures of whether a city has the longer-term foundations for success. Increased infrastructure investment, the creation of high-skilled jobs and high levels of FDI are all characteristics that define the city. The city has attracted major investments from the likes of Microsoft, Apple and Uber as a national technology centre. The city s leadership has been instrumental in enabling Hyderabad to keep pace with Bangalore helping to set up India s largest incubator, focusing on specific niche industries (such as gaming and animation) and building business attractiveness. Ensuring that infrastructure keeps pace with the city s rapid development will remain a priority. Unlocking investments Planning matters extended periods of rapid capital value growth, acquiring a significant portfolio of residential units in these major cities is likely to require a significant level of investment. The success and capital growth exhibited by these cities have also resulted in strong yield compression over the past decade. This, among other factors, has turned the heads of many potential suitors to south India s other city growing Hyderabad. Rising urbanisation across the states and inward migration from other parts of the country have driven up demand Affordability is the key for office space. Furthermore, most of Bangalore s largest office markets face the same substantial conundrum: chronic undersupply of quality construction. These two factors have caused prices for the existing stock to soar in Hyderabad. Investment in alternative locations such as Hyderabad cannot only result in higher rent yields but also improve geographical diversification and allow buyers to acquire units in greater scale. International investors have long coveted exposure to south India s largest property markets, such as Bengaluru and Chennai. Yet, there are numerous barriers to entry that mean gaining access to these markets is difficult and there are relatively limited opportunities compared with the high levels of interest. Furthermore, following The Star Capitals Hyderabad & Amaravati 3

4 Drivers for the city Rising Costs High rents driven by low supply and low vacancy in cities like Bengaluru is likely to impact occupiers looking for cost efficient spaces and locations. As such Hyderabad is likely to capitalise on this demand. Improving Infrastructure The state government is investing heavily in improving connectivity of Hyderabad with other surrounding towns and cities. These improvements will reinforce the attractiveness of regional markets to occupiers and enhance competitiveness. War for Talent The ongoing trend of urbanisation, the increasing ability of regional cities to attract growing and younger populations, will mean larger talent pools plus greater demand for goods and services, which are very attractive to occupiers. 4 The Star Capitals Hyderabad & Amaravati

5 Office Rise of Integrated Tech Spaces Hyderabad is recognised as one of the leading IT hubs globally. The city houses more than 1,400 companies, both large and small. Because of industry-friendly policies and other initiatives to attract T-Hub investments into the state, there has been a resurgence of interest in the IT and allied sectors in the state. Some of the biggest global companies in the IT sector have shown interest in the state. Hyderabad is now home to some of the leading software companies in New Areas of Technological Growth the world, such as Microsoft, Google, Deloitte, Facebook, Cognizant, Oracle, Amazon, Apple and Salesforce. Many of these companies have made Hyderabad the base for some of their most critical global operations. Rise of Integrated Tech spaces In Hyderabad in recent times, we saw the rise of international technology parks such as Salarpuria Knowledge City, TSI Waverock and Raheja Mindspace. In these IT parks, companies will benefit from state-of-the-art facilities and extensive supporting lifestyle and social amenities such as F&B outlets, banking and recreational facilities. Designed with sustainability in mind, these tech parks cleverly integrate nature into their blueprint to create manicured landscapes and open spaces for vibrant communities that feature perfect backdrops for interaction, recreation and work. Eco-friendly features that meet international standards are blended into industrial and social spaces to conserve energy, minimise carbon footprint and reduce operating costs. These tech parks also offer a pro-business environment with a cluster-oriented customer base, enabling companies to derive synergies with their customers and suppliers. The other upcoming trend in the development of the new age tech parks is the co-working space. CoWrks, an arm of commercial real estate developer RMZ, is building Telangana s largest co-working centre in Hyderabad. The centre will be part of Bengaluruheadquartered RMZ s commercial office space project Skyview, which is being executed in alliance with Hyderabadbased My Home Group. The 10-million sq ft office project is expected to be operational by January Companies can enjoy high standards of facilities management and reliable infrastructure support and services, such as power and water supply, waste water treatment and telecommunications, for cost effective and smooth business operations. The Star Capitals Hyderabad & Amaravati 5

6 New areas of Technological Growth Apart from the conventional IT/ITeS and electronics manufacturing, the world has seen the emergence of new technologies such as big data, gaming, animation, photonics and cyber security in recent times. These new technologies are important and India is going to play a big role, and Telangana intends to be the number one technology destination. The electronics manufacturing industry, which had, by and large, ignored India for many decades, is now showing a tremendous affinity towards India. Hyderabad offers a very attractive destination for the electronics and semiconductor industry, and already some of the leading companies have started the construction of units in the state. To seize opportunities in upcoming sectors, the Government of Telangana launched the new ICT Policy, Electronics Policy, IMAGE Policy (for the animation and gaming industry), Innovation Policy and Rural Technology Policy to augment growth in these sectors. Further, to augment growth in emerging sectors, the Government of Telangana launched four sector-specific policies the Data Centres Policy, Open Data Policy, Cyber Security Policy and Data Analytics Policy. 6 The Star Capitals Hyderabad & Amaravati

7 T-Hub One of the key factors in the growth of Hyderabad s start-ups is T-Hub, India s fastest growing start-up engine and the country s largest start-up incubator. Spread across 70,000 sq ft, T-Hub s Catalyst building houses co-working spaces, meeting areas, networking sessions, events and conferences. T-Hub is not just an incubator that supports start-ups through their journey: it is a start-up that is creating a start-up eco-system in Hyderabad to make the city the start-up capital of India. After achieving a phenomenal success in the establishment of T-Hub Phase I, the Government of Telangana has embarked on a plan to develop T-Hub Phase II on 3 acres of land with a total built-up space of 350,000 sq ft, providing IT incubation space for 4,000 IT entrepreneurs/professionals. T-Hub Phase II will be operational by Key achievements of T-Hub There are 711 entrepreneurs working in T-Hub under 200 start-ups. T- Hub has conducted 92 events/ workshops and reached 2,995 entrepreneurs. T-Hub has inked partnerships with 15 venture capital funds, seven angel networks, 25 seed funds and 30 incubators and accelerators. T-Hub has forged multiple partnerships with key stakeholders in ten countries, including the USA, the UK, Germany and Singapore. Major corporate companies such as Microsoft, Google, Amazon, HP, Cisco, IBM, Yes Bank and others have been working with several start-ups by entering into MoUs and partnerships with T-Hub. Source : The Star Capitals Hyderabad & Amaravati 7

8 Residential Affordability National players coming into market Integrated townships Affordable housing As land price is the main constraint for developers in constructing affordable housing, the Government of India came up with an initiative to boost its flagship affordable housing project by providing Public Sector Enterprises with free space in prime locations. As part of the initiative, the government identified a 29-acre land parcel at HMT Bearing Ltd in Hyder- abad, allocating half of the built-up area on the land for affordable housing. The government had a plan to collaborate with private players to develop affordable housing and provide them with tax incentives, such as a 100% tax deduction on profits and other benefits, to recover their ROI. Top affordable projects in Hyderabad: Modi Properties Paramount Avenue Rajiv Swagruha Sadbhavana Prajay Engineers Gulmohar Celebrity Prime Uber Heights Edifice Projects Tulip National players coming into the market Bangalore-based players such as Brigade, Mantri, Embassy, Purvankara and Prestige are keen to have a footprint in Hyderabad, which paved the way to an overall increase in the quality of housing. Bangalore Delhi Hydrabad International Integrated townships Hyderabad witnessed a surge of demand in recent years by facilitating state-of-the-art integrated townships that include commercial, retail and residential developments. IT industry propels people to migrate across the country, which is followed by groups of people with different tastes and interests to settle in metro cities such as Hyderabad. Therefore going further, it is essential for developers in Hyderabad to provide all kinds of amenities with good access to retail and commercial facilities to attract the IT employees. National players successfully penetrated in Hyderabad by collaborating with local developers for constructing mixed-use developments like commercial, residential and retail, which also helped local developers to diversify into other sectors and also bring in new designs in the city to suit various buyers. 8 The Star Capitals Hyderabad & Amaravati

9 Retail Exploring new areas F&B growth International investors penetrating into Hyderabad Technological advances Often described as being located at a crossroads between Karnataka and Tamil Nadu, Hyderabad is a fascinating mix of two very different cultures. This contrast is reflected in the retail market, where the centuries-old Charminar and Exploring new areas Koti bazaars sit alongside some of the most impressive new retail destinations. As economic conditions improve in Hyderabad, retailers are entering Hyderabad as part of their expansion plans as they search for growth and diversification. Hyderabad is on its way to being south India s most affluent city and buoyed by strong online sales and a young population, this city offers abundant opportunities for retailers. Locations like Abids, Punjagutta and Begumpet in the Central zone offer the greatest opportunity for modern retail across all product categories. Uppal in the East is a location that is likely to experience modern retail growth. The modern retail growth in Hyderabad will be propelled by both bricks-and-mortar and e-tail formats. The bulk of the modern retail space is being built in the West and North-West zones, as the residential core of the city continues to shift in this direction. Moreover, locations like HITEC City and KPHB in the West and North-West zones account for more than two-thirds of the mall space in Hyderabad. Most of the malls in Hyderabad are in the West and North-West zones. F&B growth Restaurants and cinemas have established themselves as key drivers for generating more footfall. In addition, restaurant space in malls is likely to double to about 25% of the total available space, while fashion outlets take up reduced space within the malls, as they are becoming more selective. Mall developers have noticed that the food they provide is a major pull and that getting the right eatery brands that cater to specific taste buds will shape the quality of their visitors. West Hyderabad, given the progress in the construction of the metro and other transport infrastructure initiatives, coupled with cheaper land prices, encourages accelerated real estate development. The Star Capitals Hyderabad & Amaravati 9

10 International investors penetrating Hyderabad While international brand penetration is still relatively low in comparison with other key south Indian cities, there is no doubt it is on the rise. New fashion entrants such as H&M and Forever 21 that have been embraced well by local shoppers, resulting in a healthy rise in sales. Allowing for 100% automatic FDI in single brand retail and 100% FDI under the marketplace model has been a necessary catalyst for various international brands to consider India as a retail market of choice. Hyderabad: The LuLu Group (an international hypermarket chain and retail venture) has started various business activity and projects in collaboration with the Anmol Group of Hyderabad. Coolpad has announced its first exclusive experience centre in Hyderabad. Trent Hypermarket, a 50:50 JV between Tata and British retailer Tesco, plans to open 50 retail stores in Hyderabad in the next 2-3 years in addition to setting up a distribution centre. The Star Market store entails an investment of IDR 3 crore-idr 4 crore and the distribution centre will see an investment of IDR 25 crore. The company has identified a 70,000-sq-ft space for its distribution centre that will cater to the Hyderabad market. Tonique recently opened its biggest modern liquor and wine store with an area of 15,000 sq ft in the posh area of Jubilee Hills in Hyderabad. The recently opened Tonique has been attracting women and men alike and even tourists. IKEA is set to open its first retail store in Hyderabad in April The store will feature 7,500 furniture and home furnishing products and a 1,000-seater restaurant serving healthy and nutritious Indian and Swedish cuisine. It will also have a play area for children and a day-care centre for children of its employees Technological advances Sustained economic growth, job creation and the prospect of real wage growth are all feeding through into improved consumer confidence and a brighter outlook for retail sales growth prospects. From the global scenario, retailers that adopt a multichannel retail strategy, i.e. integrating the Internet, mobile and in-store experiences, will thrive in this new environment. Technology is also being used to improve the mall shopper s physical experience, with park me apps, for example, guiding vehicles to vacant spots in mall parking lots. Artificial intelligence, robots and targeted remarketing are being brought in as new tools to engage with customers. Whether it is through embracing technology, adapting the tenant mix to include increased food and leisure or stepping up efforts to serve and communicate with customers, retail places and retailers of Hyderabad are doing it all. Per Person Mall Space Analysis Sub-market Per person mall space analysis Central 0.21 East 0.06 North 0.00 South 0.00 West The Star Capitals Hyderabad & Amaravati

11 Amaravati Amaravati, the new capital city of Andhra Pradesh, situated right in the middle of the state on the southern banks of the River Krishna, is within 50 km of Vijayawada and Guntur. After the state bifurcation, the Andhra Pradesh Government was resilient enough to set up a new era in developing the state s world-class capital. As part of this, the Andhra Pradesh Government came up with a few strategies, such as: Land pooling Theme cities Development of human resources Amaravati is being developed with a flood security plan and antiinundation measures prepared by consultants from IIT Madras and Netherlands. Land pooling Land pooling in Amaravati is curated in such a way that landlords will benefit from one-quarter of the developed land in the new city out of the land donated for land pooling to the government. In addition, landlords will receive annual compensation of INR 30,000-INR 50,000 per acre for the next ten years with an annual increase of 10%. Landlords also have an option of using 70% of their land for residential purposes and 30% for commercial purposes. This strategy resulted in the acquisition of more than 30,000 acres from farmers. Theme Cities The government is taking initiatives to build world-class infrastructure by connecting all the city roads to Amaravati, with the metro enabled and the airport at Vijayawada already in use. Amaravati will have three main ring roads a 94.5-km internal ring road at a radius of 15 km from the core capital city, a 150-km outer ring road at a radius of 25 km and a 210-km regional ring road at a radius of 34 km. Economic development of Amaravati city is expected to create 1.5 million jobs by 2050, with more than 45% through direct employment in Knowledge City, which has investment of approximately INR 20,000 crores. Development of human resources The construction of campuses for SRM University, the National Institute of Design, Amity University, Amrita University, Centurion University, the Central Institute of Tool Design and the National Institute of Fashion Technology has started. Moreover, the Vellore Institute of Technology welcomed its first batch of students in July and an Indo-UK health centre and a university will be operational from The Star Capitals Hyderabad & Amaravati 11

12 Amaravati is spread across 217 sq km and will be developed in three phases. Phase I, covering 30 sq km, includes all the major government buildings with an underground cable system and a waterfront and will be completed by Timeline Development Activity I. Capital city location finalised II. The APCRDA Act 2014 enacted and the land pooling scheme unveiled I. Capital city named Amaravati II. Draft master plan published III. Foundation stone laid I. Final master plan notified II. Inauguration for interim government complexes for seed access Contract entered with Foster & Partners and architect Hafeez Contractors for government complex designs 2019 Phase I of trunk infrastructure with government complexes, universities and hotels, etc Phase II of trunk infrastructure with government complexes, universities and hotels, etc Phase III (final phase) completion Start-ups in Amaravati Along the River Krishna s waterfront, the development of a start-up hub has been started by a consortium of Singapore-based Ascendas-Singbridge and Sembcorp Development. The area lies within the 20-sq-km Seed Development Area of Amaravati City. Spread over 684 hectares, the start-up area is to be developed in phases over years. A greenfield project, it includes infrastructure development to prepare the site for a mix of business, commercial and residential activity. Opportunities in Amaravati Infrastructure development Housing development Commercial development Healthcare projects Education projects Tourism and recreation projects Manufacturing projects 12 The Star Capitals Hyderabad & Amaravati

13 Contacts For business enquiries Ashutosh Limaye Head, Research and REIS Authors Sushma Vemuri Senior Analyst- REIS & Research Kartheek Babu Senior Analyst- REIS & Research Trivita Roy Associate Director- REIS & Research About JLL JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $145 billion. At the end of the second quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of nearly 80,000. As of June 30, 2017, LaSalle Investment Management had $57.6 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit JLL has over 50 years of experience in Asia Pacific, with 36,800 employees operating in 95 offices in 16 countries across the region. The firm won the World s Best and Best in Asia Pacific International Property Consultancy at the International Property Awards in 2016 and was named number one real estate investment advisory firm in Asia Pacific for the sixth consecutive year by Real Capital Analytics and ranked among Fortune Magazine s World s Most Admired Companies list third year in a row. About JLL, India JLL is India s premier and largest professional services firm specializing in real estate. With an extensive geographic footprint across 11 cities (Ahmedabad, Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of 9300, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, analytics, consultancy, transactions, project and development services, integrated facility management, property and asset management, sustainability, industrial, capital markets, residential, hotels, health care, senior living, education and retail advisory. The firm was awarded the Property Consultant of the Decade at the 10th CNBC-Awaaz Real Estate Awards 2015 and the Best Property Consultancy in India at the International Property Awards Asia Pacific For further information, please visit Jones Lang LaSalle Property Consultant (India) Pvt Limited All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof. Copyright (YEAR) Confederation of Indian Industry (CII). All rights reserved. No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), in part or full in any manner whatsoever, or translated into any language, without the prior written permission of the copyright owner. CII has made every effort to ensure the accuracy of the information and material presented in this document. Nonetheless, all information, estimates and opinions contained in this publication are subject to change without notice, and do not constitute professional advice in any manner. Neither CII nor any of its office bearers or analysts or employees accept or assume any responsibility or liability in respect of the information provided herein. However, any discrepancy, error, etc. found in this publication may please be brought to the notice of CII for appropriate correction. The Star Capitals Hyderabad & Amaravati 13