Chennai's office space absorption grows despite supply crunch

Bangalore and Delhi NCR accounted for over 50% of annual leasing activity

Office space absorption in Chennai has seen momentum during the quarter ended December 2017 despite the limited availability of top-grade supply in preferred micro markets. The key absorption was driven by the IT industry, according to latest report.

According to a report by real estate consulting firm CBRE South Asia, low vacancy levels in certain parts of the IT hub of Old Mahabalipuram Road (OMR) led to the decline in quarterly leasing activity. Rent increased across all segments on an annual basis due to the sustained interest from occupiers for office space. 

This trend is in tune with the overall trend in the Southern cities of Bengaluru and Hyderabad, where a rental increment across almost all micro markets was reported.

"Chennai’s office market has recorded strong momentum this past year despite limited availability of Grade A supply in preferred micro markets. Key micro markets in the city continue to witness consistent demand from global and domestic occupiers," said Ameeth Raja, senior director, advisory and transaction services, India, CBRE South Asia.

With various infrastructure initiatives underway, connectivity is improving and this is providing an impetus to peripheral districts in the city, which are seeing a renewed interest in office space by corporates looking for cost-effective options.

Several Grade A office projects have been announced for the city with a number of them having commenced construction already. This development will transform the outlook for the city as it gears up for consolidation and expansion requirements from large occupiers, it said.

The office absorption in Chennai was primarily driven by IT corporates, followed by telecommunications, engineering and manufacturing firms. Most deals were for small to medium-sized office spaces and rental values remained stable across all micro-markets during the quarter.

The report said annual absorption of office space in India crossed 42 million sq ft in 2017, signalling the continued growth of the segment. Bangalore and Delhi NCR accounted for over 50 per cent of annual leasing activity. Annual supply for prime office space was over 29 million sq ft during the year, a decline of about 18 per cent on a year-on-year basis.