In Chennai, lack of supply pushes up rent for offices

space market in the Chennai sector is expected to see a dearth of adequate supply to match the growing demand and this is expected to result in an increase in rent, according to real estate experts. Starting from 2017, it is expected that the net absorption would overtake the new completion of office projects, shows a data from real estate consultant JLL.

The Chennai market, which has been seeing a stable demand of an average of 3.8 million to 4 million square feet a year, has seen a record demand of 5.2 million sq ft in 2015. With the demand expected to keep up the pace, lack of equivalent development in the supply side could create increase in lease/rental charges, said Sarita Hunt, managing director – Chennai of JLL India.

The Chennai office space market was of 54 million square feet with 12.6 per cent vacancy, which is higher than the 4.8 per cent vacancy in 93 million square feet market in Bengaluru, 9.9 per cent vacancy in 37 million square feet market in Hyderabad, according to the JLL data.

“The change has started happening from 2016 and you will see it growing in 2017 and 2018,” she said. The vacancy level would come down to single digit and with the lack of supply, from this year onwards, the city would see a land-lord driven market as against the tenant driven market. The hike in rent would depend upon the location and the facilities available.

Ajit Kumar Chordia, president of Confederation of Real Estate Developers’ Associations of India (CREDAI), Chennai, said that while the demand is almost stable, the supply is seeing a dearth of adequate development.

“Out of the 12 per cent vacancy, if you remove the peripheries of the city, the vacancy would be hardly 6-7 per cent now. This would leave Chennai without much choices in terms of supply, unless there is an impetus from the government to promote new IT space,” he said. He added that out of the demand every year, almost 95 per cent is from the IT space and it would also require revival of IT policy by the government to address the issues properly.

He added that the government should develop new IT parks in areas which are away from the current IT hub, where the area is already congested. It should also come up with some promotional activities including incentives to the IT space, which would help to attract customers from places like Bengaluru, where the vacancy rates are low and the office space segment is already good.

“A large number of companies which are already present in Chennai are looking for more space for expansion we need to find adequate supply,” he said. He added that the land prices in Chennai is higher than Bengaluru. The IT policy in the State has also not been revived for past several years, he said.

The JLL data says that the net absorption was 36.2 million square feet while the completion of new space were of 38.1 million square feet in 2015, which is expected to grow to 32.3 million square feet absorption and 36 million square feet of new completion in 2016 and 32.8 million square feet of net absorption and 31.9 million square feet of net completions in 2017.

The available office space in the lower Grade could be occupied by the smaller companies once the economy see higher growth, said a real estate developer.

Companies especially in the sectors of e-commerce, telecom and health care have expanded strongly and drove the demand for office space, said JLL recently.

Chennai continues to be a preferred growth market for Banking, Financial services and Insurance (BFSI). Scope International, Citibank, BNP Paribas, BNYM and Yes Bank transacted over 1.2 million sq ft in 2015. Although the contribution of space take-up by start-up firms has not been very significant they were seen to pick up pace and leased over 0.1 mn sq ft of space in 2015, it added.

Credits Business Standard

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