Chennai’s office space demand slows down

Chennai

Chennai’s office market has slowed down with less than a million sq ft of office space being absorbed till May this year. While corporates are deferring their decisions to commit large spaces, smaller deals in the area range of 10,000–25,000 sq ft are happening across micro markets. This is because of the availability of good quality office spaces in CBD areas.

According to market sources, commercial property developers are only servicing the existing requirements of clients, whereas new enquiries are slowing down, a clear indication of the impending overall slowdown in the market. Even the existing requirements were initiated during last year and in the beginning of this year and the spill over effect are only seen now.

There is another reason for the reduction in supply level. Most of the property developers and landowners prefer residential development which has resulted in the restricted supply level of office space in non-IT building both in city areas and suburbs. As a result, in the medium to long-term, supply level of good quality non-SEZ office space will be restricted in the coming years.

Rentals for office space are firming up across micro markets but they are marginally up in CBD areas. Rentals are marginally up on OMR before the toll gate, but they are softening for buildings located after the toll gate. However, the preferred locations among corporates continue to be OMR, as there is organised supply level in the corridor. Whereas for non-IT sector, a few office buildings are coming up in CBD areas like Anna Salai and Greams road.

A significant development is that supply level of office space in the non-IT sector is getting restricted both in city areas and suburbs. With the result rentals may harden in the coming years if adequate development is not forthcoming for commercial space, say property consultants.

Though the vacant spaces across micro markets in the city look high in today’s scenario, it is not in the preferred locations by corporates and MNCs. Land owners in city’s prime areas are not even contemplating commercial development but predominantly focus on residential development. The cumulative impact of all this will be negligible non-IT office supply level in the coming years, according to realtors monitoring the supply movements of office space in the city.

The demand for SEZ space is growing with the supply levels on GST road, Mount Poonamallee road and OMR firming up.

Outlook:

According to industry sources, those who have already taken a plunge for expansion requirements in Chennai may go ahead with their plans. But others who are in the process of decision making on expansion may slow down and even postpone their requirements, a situation that does not augur well for the commercial property market in the city. The city is likely to witness absorption of 5.3 million sqft by the end of this year.

V Nagarajan, Property Consultant

Source: http://content.magicbricks.com/chennais-office-space-demand-slows-down