Chennai realty appears to have put the worst behind it, and looks set for a modest recovery. Shanthi Kannan reports
The Chennai real estate market has charted a somewhat haphazard growth path since 2007. After the slowdown in the global economy, the realty market went into a correction mode, with developers, buyers and private equity investors adopting a wait and watch approach.
However, the market has shown signs of picking up in 2011. Anurag Mathur, Managing Director, Cushman & Wakefield India, says the real estate sector has seen a significant recovery during 2011. The Chennai real estate market, he believes, is well regulated and organised, but being a conservative market, the growth has been slow. However, with the rapidly burgeoning industrial development, he thinks that growth in Chennai will soon catch up with other metros. We present here some of the salient points of a study done by his team on the real estate market in Chennai — residential, office space and retail markets.
The Chennai residential market has witnessed a strong upward movement in terms of capital values over the previous year, with many micro markets crossing the peak levels of 2008. The highest capital appreciation in Chennai has been in Adyar and Poes Garden, both recording 25 per cent growth in capital values over last year. Positive demand for high end properties in these locations, and limited supply, have pushed the values upwards, according to the study.
The demand for residential units in Chennai is likely to grow at a rate of 11 per cent from 2011 to 2015. Supply over the next five years is expected to be around 1,17,500 units, which is higher compared to other major cities such as Bangalore, Hyderabad and Pune. Chennai witnessed nearly 100 new residential project launches during 2011 and approximately 15,000 units will become available in the city in the next two to four years. The supply during the year was mainly concentrated towards the mid segment and peripheral markets.
Kalpana Murthy, Assoicate Director – Residential Services, Cushman & Wakefield India, says that Thiruvanmiyur, Mogappair, Velachery and Tambaram — categorised as mid end markets — have had the highest supply of mid end housing with over 7000 units being launched in 2011. A substantial part of the total supply in 2011 was located in the growth corridors of Chennai; with Perungudi, Thoraipakkam, Sholinganallur and Perungalathur seeing the launch of 750 units. The upcoming locations — Kelambakkam, Sholinganallur, Oragadam and NH-4 — recorded approximately 6,400 units largely catering to the investor segment.
Rental values have appreciated across most micro markets. The established markets of Nungambakkam (35 per cent), Poes Garden (34 per cent), Anna Nagar (23 per cent) and Adyar (31 per cent) with limited availability of quality options and consistent demand have continued to appreciate. The demand in the high-end segments (including markets like R.A Puram, Adyar and Kilpauk) is mainly driven by expatriates and senior management professionals moving into Chennai.
The report puts that total commercial space absorption forecast for 2011 at 4.2 million sq. ft, a 9 per cent increase from last year. Chennai, apart from Bangalore, is the only city to witness positive demand over supply in the market.
Chennai is expected to register a supply of approximately 1.4 million sq ft. in 2011, 72 per cent lesser than the total supply in 2010. This is due to fewer projects initiated during the recession, project completions being delayed and a more cautious approach towards planned developments. This slowdown in office supply is a positive indicator for the office real estate segment, according to N. Hariharan, Office Director of Cushman & Wakefield India.
The office rental values in Chennai in 2011 have appreciated in the range of 4-10 per cent as a result the absorption in these markets. The highest rental increase of 10 per cent was witnessed in the off-CBD (central business district) region. This rental rise may be due to the lack of availability of space in these locations. Whilst certain micro-markets in the CBD and off-CBD regions are expected to see a slight rental appreciation in the short term, rentals in other regions are expected to remain stable.
According to the Cushman & Wakefield research, the overall demand for office space across the next five years in Chennai will be approximately 27 million sq. ft., with demand of four million sq. ft., in 2011. The expected supply in 2012 is 6.4 million sq. ft., with the suburban locations expected to account for more than 60 per cent of the upcoming supply. SEZ space in suburban locations is expected to witness heightened demand in 2012.
Mr. Hariharan says the Chennai retail market is growing steadily, though intermittently. This is clearly seen from the fact more large format retail malls are coming up. The total expected supply for the next five years (2011-2015) for mall space is approximately 4.5 million sq. ft., most of which will be concentrated on Rajiv Gandhi Salai (Old Mahabalipuram Road) and East Coast Road. However, given the current absorption, the expected supply is likely to outstrip demand. Demand is expected to languish in the range of 2.5 – 3.0 million sq. ft., in the same period.