Chennai retail witnesses limited transactions

Chennai

With no new supply of mall space entering the market during the first quarter, Chennai’s high streets gained healthy leasing transaction. Limited number of transactions has also contributed to the stable rental and capital values. High interest rates, global macro-economic conditions and lack of quality mall space have resulted in fewer transactions which in turn left the financial indicators to remain stable. Vacancy levels decreased from 14% in fourth quarter of 2011 compared to 13.5% in first quarter of 2012.

The largest deal was by French Home furnishing retail chain Ebony Gautier, which took around 10,000 sqft space in Express Avenue mall.

According to Jones Lang LaSalle’s review, small format stores in the CBD were in demand during the first quarter. Canon Image studio, Gem Palace, Lasya, Kryolan, Timex, Eye T World were some of the brands which occupied vacant spaces in Ramee mall during the review period. Ground floor office buildings continued to attract retailers with Spectrum Shoppe’s leasing out around 1,900 sqft in Ambit IT Park, Ambattur industrial estate.

Lack of new mall space helped high streets to gain healthy leasing during the quarter. LG opened two stores, one in Nungambakkam high road and another in Chrompet. Louis Philippe, Van Heusen and Zimson opened shops in Adyar, while Harley Davidson and Apple opened stores in Nungambakkam. Roshal Lal women’s ethnic wear and Helios opened shops in Shanti colony, Anna Nagar whereas Reliance Trendz opened its shop in Chrompet.

A significant factor is that no new mall supply was added during the first quarter. Ten Square mall coming up in Koyambedu near the mofussil bus stand is now ready for fit-outs stage and is expected to come during the second quarter this year. This will add around 150,000 sq ft of mall space taking the total supply of city’s mall space to 3 million sq ft. In a small market, no sales transactions were recorded in the retail malls sector over the past few quarters as new malls in the city operate on lease model. However, the city’s retail segment delivers high returns on investments which compels the investors to hold on to their investments.

Outlook:

With the Union budget putting more money in the hands of avid shoppers, sales for the retailers are likely to increase, feel property consultants. Vacancy levels are likely to rise in the next 12 months amidst the supply of over 2 million sqft of mall space. Though vacancy rates are expected to surge, absorption in the new malls are also expected to improve amid flourishing residential and commercial activity in the suburbs.

Chennai saw an unprecedented number of residential project launches during the first quarter this year. Over 14,500 residential units were launched by various developers during the first quarter when compared to an average addition of 4,550 units during the past four years. The government’s clearance of pending approvals was considered as one of the major factors that contributed to the historic record number of launches in the city.

Demand for residential units skyrocketed during first quarter with over 9,500 units getting absorbed when compared to 5,076 units in 4Q11. Southern and western suburbs together contributed around 85% of the total net absorption.

Rental and capital values for retailing are likely to improve in select pockets of suburbs and in prime locations while peripheral areas may remain stable.

V Nagarajan, Property Consultant