APPD Market Report Article

Chennai

May 31, 2022

0.4%

INR 70

Rents
Rising

Manufacturing and IT/ITeS lead office space demand in the city

  • The year 2022 started on a bright note for Chennai’s office sector. Chennai’s commercial market recorded a gross leasing volume of 1.4 mn sq ft, the highest in the past four quarters. Almost 1.2 mn sq ft of net absorption was recorded in 1Q22, an increase of 42% q-o-q.
  • The SBD submarket accounted for 56% of the total leasing activity with key occupiers being from the manufacturing/industrial (31%) and IT/ITeS (25%) segments. The flexible workplace segment also witnessed healthy traction and the share of leasing activity among flex-space operators nearly doubled q-o-q to 21% in 1Q22. Additionally, almost 4,200 seats were leased by flex operators in 1Q22.

Strong supply infusion witnessed in 1Q22

  • New supply infusion of 2.4 mn sq ft was witnessed in the quarter, a significant 149% q-o-q increase.
  • Almost 79% of the total supply was in SBD while the remaining 21% was in PBD GST.

Rents and capital values are unchanged

  • On a quarterly basis, the overall city rents remain stable.
  • The rising vacancy trend in the past few quarters has kept rent growth under check. All major developers in the city continue to take an accommodative stance by offering concessions on rents to retain existing occupiers and attract new tenants.

Outlook: Chennai’s office market outlook stays positive

  • With governments relaxing COVID-19 restrictions in the city, office occupiers have started returning to offices and have reinstated their real estate expansion plans. The return to offices rate currently stands at 60%, however, it is expected to touch 90% by 2Q22. Active demand for conventional offices and flexible space remains healthy.
  • The strong supply pipeline by well-known developers and healthy pre-commitments will help drive the net absorption numbers in the coming quarters.

Note: Chennai Office refers to Chennai's overall Grade A office market.

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