Office space has no takers, builders bank on housing

CHENNAI: South India houses close to half of the country's office space. But with office vacancy rate inching higher, real estate developers in the south are eyeing the residential space for sure returns.

In Chennai alone, there is more than 30% office space vacancy in peripheral areas such as Old Mahabalipuram Road (beyond Perungudi) and GST Road (beyond Perungalathur). In suburban areas (Guindy, Perungudi, Taramani, Ambattur), the vacancy rate is more than 16%, while off-Central business district locations have a 9% office vacancy rate, according to real estate consulting firm Cushman & Wakefield.

Real estate consultants define central business district (CBD) as arterial roads stretching 2km from the Anna flyover like Nungambakkam, RK Salai and Anna Salai. Off-CBD areas include places such as Guindy, Velachery and Anna Nagar, which come after CBD.

"People will come to Chennai to build residential projects as there is an oversupply in office space," real estate developer Navin's MD R Kumar said.

The supply of office space in southern cities has been more or less met for the medium term, according to a report from global real estate consulting firm Jones Lang LaSalle. The report said the cities have chosen a strategy of pursuing selective quality development over rapid expansion. Peripheral areas - beyond Perungudi and Perungalathur - are expected to see further decline in demand and rise in supply. Slow infrastructure development is the key problem that bog down demand there, say experts.

Most builders are confident about the south Indian housing market, especially Chennai. With demand rising, the sell-outs are working as planned, they say. "Private equity players and new entrants are more interested in Chennai as sales happen as per plan," said S Vasudevan, CEO, Embassy Group. Diversified company Archean Group has chalked out plans to build their first residential project in Chennai. The company is looking at a high-end, high-rise residential apartment complex in OMR, touted to be one of tallest buildings in the city.

Generally, south India's residential market follows the affordability mantra, with more than 80% of the new launches in the past two years being priced under Rs 4,000 per square feet.

As a result, the residential markets of south Indian cities have remained resilient in the past few quarters, the LaSalle report added.

Source: http://timesofindia.indiatimes.com/city/chennai/Office-space-has-no-takers-builders-bank-on-housing/articleshow/13073290.cms