Chennai’s real estate market is driven largely by captive back office operations of large corporations, mostly in the financial services vertical. In any given year, the city absorbs nearly 4.3 million square feet of office space.
“The interest for quality office space remains strong, but we are hamstrung by the absence of supply,” said S Ramaswamy, director of real estate consultancy Asset Advise. “Several existing and new players have signed up mandates for expansion here, while we wait for supply to get in.”
With quality office space supplies hitting the nadir, rentals are rising. “Between Q2 (April-June) and Q3 (July-September) there is a 5% increase in rentals,” said V S Sridhar, managing director, Chennai market, Cushman & Wakefield, international property consultants. “The important part of the story is the net absorption which is positive,” he said. Net absorption is the new deals signed instead of the same client moving from one location to another. “70% of all deals this year is fresh deals,” he said.
Among the top deals in the July-September quarter includes GE signing up for two lakh square feet in Ramanujan City (in Taramani), World Bank and e-tailer Amazon signing up for 70,000 sqft each at SP Infocity in Perungudi and Freshdesk adding another 80,000 sqft at SP Infocity.
“Certain micromarkets are witnessing good appreciation in rentals. For example, for IT spaces in Sholinganallur and beyond rentals are now nearly 28 a square foot from 24 earlier,” said Kanchana Krishnan, director, Chennai, at Knight Frank India, property consultants. “The pipeline is strong. Deals will get inked when fresh supplies start coming in,” she added.
Indicative rentals at OMR (upto toll plaza) which was between 50 to 65 has now risen to a minimum 60. Central business district rentals have risen to nearly 80 a square foot from 75 a square foot, industry sources said. At current run rate, real estate industry sources have guided to a 4.5 million square feet of absorption for 2016 compared to 5.2 million square feet in 2015.