Real estate rentals on the rise
CHENNAI: Shortage in supply of office space has resulted in reduced absorption and higher real estate rentals in Chennai. For the period from January to September this year, deals for nearly 3.3 million square feet have been signed, down from 3.7 million a year ago. Rentals have, however, shot up by nearly 10% year-on-year.
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 70,000sqft each at SP Infocity in Perungudi and Freshdesk adding another 80,000sqft 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 KnightFrank India, property consultants. “The pipeline is strong. Deals will get inked when fresh supplies start coming in,” she added.