Flex and IT/ITeS lead diverse sectoral demand despite y-o-y decline

• Q1 gross leasing reached 1.7 million sq ft, down 10.7% y-o-y. Flex providers drove 30.2% of activity, while IT/ITeS contributed 25.2% and manufacturing 16.8%, demonstrating continued diverse demand across multiple sectors.
• Net absorption remained stable y-o-y but declined q-o-q due to cyclical tenant exits upon lease expiries and relocation or consolidation strategies executed in previous quarters. SBD and PBD OMR exhibited strong performance in Q1.

Vacancy up by 90 bps q-o-q

• The city saw an addition of three properties in SBD, SBD OMR and PBD OMR, increasing the city stock by 2.7% q-o-q to 86.1 million sq ft. SBD’s supply figures were influenced by efficiency changes in certain properties made by landlords.
• Vacancy across core markets remained in single digits despite supply additions, reflecting solid occupancy in existing stock. Incoming vacancies were quickly absorbed, indicating strong demand momentum in the city.

Marginal increase in rents and capital values q-o-q

• City rents rose slightly by 1.6% q-o-q, with rents rising by 3.3% q-o-q in PBD OMR. This increase was driven by new supply coming at higher rents and rental increases in premium properties in the city.
• Capital values showed marginal change, growing by 1.8% q-o-q. Consequently, yields remained steady, reflecting a balanced market where capital appreciation and rental income growth maintained equilibrium.

Outlook: Strong demand and supply additions in the coming years

• Robust demand, pre-commitments and active deals forecast healthy net absorption over the next 12–18 months. The IT, flex and BFSI sectors are expected to drive occupier activity, with demand anticipated to remain strong.
• The Chennai Grade A office market is projected to add approximately 9.5-10 million sq ft of new supply during 2026-2027, with PBD OMR and SBD collectively contributing roughly two-thirds of this upcoming supply.