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

Demand for office space down in Chennai

Chennai

The office market in Chennai witnessed an overall absorption of less than 1 million sq ft during the first quarter this year. The Central Business District (CBD) encompassing areas of Anna Salai, T Nagar, RK Salai, Alwarpet, Nungambakkam witnessed a dip in demand for office space with negligible absorption of around 0.09 million sq ft being reported in the present quarter, largely in smaller and medium format office spaces.

However, due to negligible supply addition rental values firmed up by about 2-3% on a quarter over quarter basis, according to the first quarter report by CB Richard Ellis.

The Off/Non CBD micro-market of MRC Nagar, Guindy and Taramani witnessed stagnation in market activity when compared to the previous quarter. Absorption was recorded at around 0.16 million sq ft. However rental values witnessed a marginal increase of 4-5% on a q-o-q basis, primarily due to low supply pressures when compared to the suburban micro-markets.

A nominal supply of 0.08 million sq ft was released; vacancy level was in the range of 3 – 4%. The Suburban Business District (SBD) including areas such as Velachery, Perungudi, Mount Poonamallee Road witnessed maximum activity during this quarter with an absorption of almost 0.32 million sq ft being reported, compared to around 0.25 million sq ft in the previous quarter.

On the supply side, no significant additions were witnessed during the review period. Rental values increased by about 5-8% on a quarter on quarter basis; vacancy level was around 7 – 8% in the present quarter.

The Peripheral Business District (PBD) of Perungalathur, Sholinganallur, Siruseri, Ambattur and GST Road witnessed minimal activity with absorption of only around 0.08 million sq ft, compared to around 0.45 million sq ft in the previous quarter. The region witnessed an addition of around 0.72 million sq ft of fresh IT space, the only major supply addition in the city during the review period. Supply pressures and stagnating demand led to a downward pressure being created on rental values and a steep increment in vacancy levels to around 18-20% in the present quarter.

Market Outlook

The overall market sentiment, however, continues to remain positive which is expected to translate into healthy absorption over the coming few quarters. The SEZ segment should continue to witness supply addition, thereby being a major contributor to the office market in the city. IT and back-office operations are expected to continue to remain major contributors to office demand and transaction activity. Rental values are expected to remain largely stable across most micro-markets over the coming few quarters.

V Nagarajan, Property Consultant

Source: http://content.magicbricks.com/demand-for-office-space-down-in-chennai