Despite major reforms that affected the country’s housing sector last year — demonetisation, RERA and GST — the commercial segment fared well across micromarkets. As per Colliers International Research, Chennai recorded about 4.8 million sq.ft. of office absorption in 2017 (excluding pre-commitments and renewals in 2017).
Bengaluru grabbed the lion’s share of overall office demand and remained the frontrunner with record-breaking leasing of above 15 million sq.ft., with a 36% share. This was followed by NCR at 18%, Hyderabad at 13%, Mumbai at 12%, Chennai at 11% , Pune at 8% and lastly, Kolkata at 2%.
Chennai scenario
Realty reports highlight a rise in demand for Grade A office spaces in 2018. This will be across key sectors such as IT, manufacturing, engineering, banking and finance. Experts indicate that the rise in rentals will continue through 2018 but it won’t affect absorption rates as there is a shortage of new launches.
Rise in rentals is already evident in areas close to Tidel Park (OMR), which has already touched the ₹100 per sq. ft lease rental rate. In addition, rates along Mount Road have touched the ₹120 per sq. ft. mark, fuelling the growth of office spaces in the city. T Chitty Babu, Chairman and CEO, Akshaya, says the upcoming Metro corridors, enhanced airport infrastructure and new connecting corridors have also contributed to the growth of the commercial segment this year.
Ajit Kumar Chordia, Managing Director, Olympia Group is of the opinion that the city will match last year’s absorption levels and they won’t cross the 5 million mark due to the non- availability of space in the preferred locations. “Hyderabad, which has overtaken Chennai, will continue to maintain its lead on account of quality space, affordable rentals and proactive government policies: factors that are missing here,” he says.
Top trends
The rise of co-working spaces tops the list of what will trend in 2018. There has been a significant rise in space taken up by co-working companies and this has impacted rental rates as well. “There will also be a focus on automation, robotics and artificial intelligence technology driven companies. Markets might witness the dominance of smaller deal sizes in the total transaction volume,” says Kanchana Krishnan, Director – Chennai, Knight Frank (India). The further expansion of the automobile and IT sectors is also expected in a big way and the demand for medium and large sized office spaces is expected to surge this year.
Chitty Babu expects many companies will invest in opening their back-end offices in the city and Chennai will have enough supply to meet the demand. “The city will continue to attract a lot of start-ups in the city. In addition, office retail complexes (ORCs) have emerged a great opportunity for developers to mix office and retail spaces,” he adds.
Demand for larger spaces that include warehouses and lands for setting up larger retail complexes and bigger centres for back-end company processes is going to be big this year too. Suresh Krishn, President, CREDAI Chennai, foresees the IT sector to remain the city’s major contributor for office space. “Though the city experienced low vacancy for a brief period in the past few quarters, we feel that supply will be able to match the demands this year.”
Emerging areas
Pallavaram Thoraipakkam Road (PTR) is one of the top contenders. The location’s proximity to OMR and the airport are added advantages. Mount Poonamallee High Road (MPR), which was until recently synonymous with DLF Cyber City, would run a parallel race with PTR. While both locations have their share of challenges at present, it’s only time they develop into established corridors, says Shaju Thomas, Director, Office Services (Chennai), Colliers International India. Other micro markets such as CBD, Guindy, OMR (pre and post toll) will continue to have their share in the absorption pie. GST Road, unfortunately is yet to show any traction in this asset class.
What’s next
So how do realty players see the city’s commercial segment faring in the next five years?
As per a report by Cushman and Wakefield, by 2020, top Indian cities will absorb 40 to 45 million sq.ft. of office space per year. Initiatives such as the Smart Cities Mission and Housing for All by 2020 will give the industry a much-need push.
Chennai would be flush with Grade A supply (commercial, IT and SEZ) from the fourth quarter of 2019 onwards. Pan India developers, end-users and occupiers are looking at Chennai with renewed interest and the conservative set-up here is one of the market’s key drivers, says Thomas. With developers building REIT-compliant facilities, he feels there is no dearth of superior workspaces available.