CHENNAI: Lack of high quality office space is pushing up rentals in key business districts across the city. Rentals are up between 10% and 12% over the past two quarters, in prime locations like the Ramanujam IT Park, Ascendas and other prominent business destinations.
Chennai’s real estate market attracts 4.5 and 5 million square feet worth deals every year. The city was perceived to have excess office space inventory till 2013-14. Upon stoppage of additional office space, the inventory has reduced sharply.
“There is a genuine shortage of office space,” said the director of real estate advisory Asset Advise S Ramaswamy .”Since the stock of quality space is coming down and the supply is also in the lower side, rentals are expected to firm up in the medium term,” he said.
With restricted or little supply , rentals have already started to head north. “We have transacted business at Ascendas IT park at nearly Rs 65 a square foot, which is nearly 8% higher while in Ramanujam IT Park it’s Rs 80 to Rs 85 a square foot from Rs 70 to Rs 75 earlier,” said director of Chennai region Kanchana Krishnan at consultancy Knight Frank. In RMZ IT Park deals are now getting inked at nearly Rs 56 a square foot as against Rs 49 earlier.
Part of the reason, which the developers and real estate consultants attribute is the shift that city witnessed from commercial to residential.”For a good three years now, developers chased residential buyers and flooded the market with apartments giving the commercial and IT space a miss. That is coming to haunt the industry now,” an industry official said.
The deal pipeline too appears robust. “The market is buzzing. There are request for quotations from Wells Fargo, Cap Gemini, Scope International, IBM and CSC. But the availability is the issue,” the industry source said.
“Outlook looks good from a demand standpoint, but bad from supply side,” Ramaswamy said.
Office space absorption too has slackened during the past quarter. During January March 2016, deals were completed for nearly 8 lakh square feet as against one million square feet a year ago.”January -March 2015 was an aberration as a lot of pending deals were completed then. That said, the future appears strong from demand pipeline,” Knight Frank’s Krishnan said.
For a city which is limping away from disastrous floods last December, the expansion programme of several top notch companies is welcome.”Rentals are rising in centrals parts of the city and upto Karapakkam on the OMR. By end year, all existing supplies will dry up which will force developers to pour more concrete into projects,” she said.
Credits ET Realty