Considered one of the country’s biggest industrial hubs, Chennai is home to a burgeoning office market. Infrastructure development has encouraged investments in the city, and over the last decade, a large number of national and international players have set up offices here. The rising demand has, over time, led to a shortage in large-format office space, which has pushed tenants towards peripheral locations such as Sholinganallur, Kelambakkam, Pallavaram, Velachery, Perumbakkam, Navalur and Siruseri, finds a recent Knight Frank India report. “The city is slowly moving towards a deficiency in the supply of Grade A spaces, which in turn would result in increase of rental values,” says Satish BN, executive director-south, Knight Frank India.
The demand is expected to rise once the economic revival projected for the medium term kicks in. According to Shushmul Maheshwari, chief executive, RNCOS, the high vacancy levels coupled with upcoming supply could restrain rentals, particularly in micro-markets such as Thoraipakkam, Sholinganallur, Semmenchery, and Siruseri, over the next few quarters. “The city’s economy is mostly dependent on software services and business process outsourcing (BPO). The IT sector is rapidly developing, the primary cause for the boom in commercial realty,” he says.
The IT-ITeS sector alone accounted for nearly 89 per cent of the total gross absorption for Grade A spaces in 2015 — a 36 per cent increase compared to the first quarter of 2014. Vijay Ganesh, office director-Chennai, Cushman & Wakefield, says the Central Business District (CBD) and off-CBD areas have witnessed limited new supply in recent years, and are characterised by older developments with smaller office spaces.
In addition to major government agencies and foreign consulates, key private sector occupiers in these locations include entities from the banking, financial services and insurance (BFSI) sector and IT-ITeS companies such as KPMG, RR Donnelley, and Citibank. Says Ganesh, “The suburban micro-markets of Guindy and Manapakkam, located in south-west Chennai, are established office locations and have a number of IT Parks and SEZs. They are well connected to other parts of the city via Anna Salai, Mount Poonamallee Road, Jawaharlal Nehru Road and GST Road. These locations have emerged as the preferred destination for several small and medium companies.”
A major reason behind the steady demand for office space is the development of infrastructure in peripheral locations that aim at improving connectivity. The State government plans to complete the four-lane stretch of a 33.5 km section on ECR between Akkarai and Mamallapuram by March 2016. Social infrastructure along the IT Corridor on OMR is also expanding rapidly. Maheshwari says, “The ongoing construction of Phase II of the Outer Ring Road, linking the suburbs, and the proposed peripheral ring road project, are fuelling the demand and capital values of the projects located in the city.”
Good road infrastructure coupled with easy connectivity to the airport via the Thoraipakkam-Pallavaram radial road has made the IT corridor along Rajiv Gandhi Salai ( after the Perungudi toll plaza) an emerging nerve centre for office markets. This makes it a good time for investors to pick up a space here for long-term rental income, as prices are lower than that of residential property. Rentals in and around the Perungudi toll plaza range between Rs. 25 and Rs. 32 per sq.ft. per month.
In recent years, apart from OMR, the demand from IT-ITeS, BFSI, automobile and manufacturing sectors has also led to increased development in locations such as Perungalathur, Singaperumalkoil and Tambaram. Says Vijay Ganesh, “ Areas after the toll gate — Thoraipakkam, Sholinganallur, Navalur and Siruseri — have some large-sized office developments in the pipeline, with potential for driving future activity.” Additionally, a number of developers have bought land parcels in Porur with plans to develop special economic zones and/ or mixed use developments.
As offices move towards these peripheral locations, it drives the development of commercial and residential spaces as well, thereby aiding in decongestion of established in-city locations. Says Ganesh, “Rentals of Grade A office spaces in suburban areas are Rs. 30-35 per sq.ft whereas similar spaces in the southern parts of the city are Rs. 45-55 per sq.ft.” Maheshwari anticipates future demand for office space to be led by IT/ ITeS. “Guindy, Ambattur, and OMR will see greater demand. Rentals on the farther stretch of OMR — from Sholinganallur to Navalur and Siruseri to Sipcot — are expected to remain stable,” he says.
Business district-wise rental movement:
Business district | Rental value range in H1 2015(per sq. ft per month) | 12-month change | 6-month change |
CBD & off-CBD | 55–85 | 3% | 1% |
PBD OMR & GST Road | 28–45 | 2% | 1% |
SBD | 45–80 | 4% | 1% |
PBD Ambattur | 28–30 | 2% | 1% |
SBD OMR | 45–65 | 3% | 2% |
Business district classification:
Business District | Micro-markets |
Central business district (CBD and off-CBD) | Anna Salai, RK Salai, Nungambakkam, Greams Road, Egmore, T. Nagar |
Suburban business district (SBD) | Mount-Poonamallee Road, Porur, Guindy, Nandanam |
SBD – Old Mahabalipuram Road (OMR) | Perungudi, Taramani |
Peripheral business district (PBD) – OMR and Grand Southern Trunk road (GST) | OMR beyond Perungudi Toll Plaza, GST Road |
PBD – Ambattur | Ambattur |
Source: Knight Frank Research
