Chennai, November, 16, 2018 – Demand in Chennai slowed with year to date (YTD) absorption declining 13% YoY in Q3 2018. However, the year should close at levels similar to 2017 as many leasing deals are expected to close in Q4 2018. The third quarter saw leasing of about 760,000 sq ft leading to YTD 2018 absorption of 2,800,000 sq ft. The YTD gross absorption declined 13% in comparison to the same period in 2017. Although the average deal size has increased in Q3, the fall in number of transactions has brought down the leasing volume. However, we expect the number of deals to increase in Q4 owing to steady enquiries by occupiers.
“Office space demand continues to be robust in Chennai and as anticipated, the city is beginning to show better traction in the ‘post toll’ OMR market. It is also very encouraging to see coworking operators establishing large scale operations in Chennai. With reducing vacancies across most micro markets, rentals are expected to increase over the short-to- medium term”, says Shaju Thomas, Director, Office Services (Chennai) at Colliers International India.
The office demand in the city is moving towards micromarkets such as Old Mahabalipuram Road (OMR) Post-Toll and Mount Poonamalle High (MPH) Road with these micromarkets constituting 41% and 23% of the total office leasing respectively in Q3 2018. The Off Central Business District (Off CBD) and the CBD contributed 20% and 11% of the demand respectively while OMR Pre-Toll accounted for 5%.
In line with our earlier forecasts, companies in the engineering and manufacturing sector started gaining momentum, accounting for 31% of the total demand in Q3 2018. The Information Technology and Information Technology enabled Services (IT/ITeS) sector represented 28% of total demand, education services (12%), marketing & advertising (10%), banking, financial services and insurance companies (8%), flexible workspace operators (4%) and other sectors represented 7% of the demand.
The availability of quality contiguous floor plates has led occupiers looking to expand to consider the OMR Post-Toll micromarket. Over the next three years, occupiers looking for proximity to the city’s core locations are likely to consider the Off CBD and MPH Road micromarkets owing to the ease of connectivity and upcoming Grade A supply.
Over the first nine months of 2018, the city has witnessed completions of 1.24 million sq ft of Grade A office supply. We expect additional supply of 17 million sq ft over 2018-2021, increasing the total office stock by 30%. The upcoming supply is distributed across micromarkets with OMR Post-Toll accounting for 52%, OMR Pre-Toll 26%, MPH Road 17%, CBD 3% and Off CBD 2%.
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