Tag Archives: Chennai office space

Is Chennai’s OMR stretch losing its sheen?

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By: A S Sivaramakrishnan, Head–India Retail Services CBRE South Asia

Track2Realty: The 50 km-long stretch along Chennai’s Old Mahabalipuram Road (OMR), or Rajiv Gandhi Salai, extends between the Madhya Kailash Junction at Adyar, Chennai, and the temple town of Mahabalipuram. It may be segmented into three sections—(i) Madhya Kailash–Shollinganallur, (ii) Semmencherry–Kelambakkam, and (iii) Kelambakkam–Mahabalipuram.

The stretch developed as a designated IT/ITeS corridor over the last decade, in a city which is the second highest exporter of information technology in India. The growth of any industry in such a vast scale, typically paves the way for the growth of other businesses too; and consequently, a large IT workforce has fuelled real estate activity in the region. Even about five years back, reasonable property prices made this micro-market a desirable destination—but not anymore. The region has been increasingly losing its sheen among Chennai’s home buyers.

The notable micro-markets located along the initial stretch include Taramani, Perungudi, Thoraipakkam, Karapakkam, and Shollinganallur. Although this is the stretch where most of the city’s IT Parks, IT SEZs, and major IT campus development are located, it is also home to several residential projects that mainly cater to the IT workforce and the catchment populace.

In the absence of large land parcels, a number of residential developments are currently under various stages of construction in this area. A few notable examples being Jain Housing’s ‘Pebble Brook’, India Bulls’ ‘Greens’, and the Embassy Group’s ‘Residency’ project.

The 200-feet road connecting Thoraipakkam and Pallavaram offers a fair amount of land parcels, where close to a thousand residential units already exist. This road has been the prime focus of development firms, with social infrastructure (viz. hospitals, malls, education institutions, etc.) being in place too. Recent entrants in the micro-market include Ramanyam, Mantri Developers and Agni Estates, who are coming up with prominent residential projects. 

It is the second section between Semmencherry and Kelambakkam that has seen significant residential growth over the past 5–6 years. SIPCOT at Siruseri, where close to 50,000 people work, has been a major catchment. With large parcels of land being available here, developers have been offering gated communities and township projects targeted at the IT crowd. A few such large-scale projects that are currently under construction include ‘Upscale’ (Hiranandani), ‘Swanlake’ (Puravankara), ‘Ouranya Bay’ (True Value Homes), and ‘Aurum’ (Pacifica). 

The third stretch of the OMR is where developers have been able to acquire large land parcels at cheaper rates, leading to more reasonably priced housing units in comparison to other parts of city. The Rs. 3,500-crore Japanese township spread over 1,500 acres (signed between the Tamil Nadu industrial investment facilitating agency, the Guidance Bureau, Ascendas, and a Japan consortium comprising Mizuho Corporate Bank and JGC Corporation) adds more value to this stretch, besides offering more than 200,000 employment opportunities.

Notable townships along this stretch are ‘PBEL City’(PBEL) with integrated sports facilities, ‘The Village’(Phoenix Hodu) with fully furnished apartments, and the ’Prime Hub’(Divyashree) with ‘villaments’ and plotted developments. In addition, a number of local and national developers have also been acquiring large land parcels here for future projects. Some notable developers with significant land holdings in the region include Vijayshanthi Developers, Marg, Akshaya Homes, and Hiranandani Developers. 

The connecting road between Kelambakkam and Vandallur has especially been attracting residential projects as a long-term investment option. With the state government planning to acquire 66 acres at Vandallur for a mofussil bus terminus, this stretch looks more promising than ever for property investments.  

As far as connectivity goes, over the years the OMR has developed various link roads connecting it to the GST (Grand Southern Trunk Road or NH 45), providing added development opportunities for available land parcels in the region. With the elevated highway set to come up soon, the last stretch of the micro-market looks particularly promising in terms of property investment options.  

The possible spillover of IT activity beyond Siruseri, along with lower land prices in this part of the area are expected to drive organized real estate development in this region. Furthermore, the expansion of the OMR stretch between Siruseri and Mahabalipuram into a six-lane expressway is also likely to amplify organized real estate activity in the long-term.

Despite all such real estate activity, however, the OMR stretch has been losing it sheen with home buyers in recent times. Apart from the general subdued economic climate, it has primarily been the property pricing progression in this micro-market that has dampened demand.

Consider the fact that between 2010 and 2014, price points rose by about 60–80%, especially along the first two sections of the area—and it becomes clear why an area that was primarily desired for its affordability, should now be leaving the average home buyer cold. Even areas like Medavakkom, located off-Shollinganallur and recognized as one of the top 10 property locations in the country, have become comparatively unaffordable for the city’s general home buyer over the past couple of years due to climbing price points. 

Add the fact that social infrastructure along the OMR is yet to fall in line with the price range of products on offer, and it becomes even clearer what it is that has been plaguing the micro-market of late. The ground reality is that affordable property today has shifted towards the peripheral stretches of OMR, beyond Padur, which is a good 35–40 km from Adyar. And despite social infrastructure along this last stretch having much left to be desired, home buyers have little choice but to invest here.

Residential property along the OMR will continue to attract demand in the long run, because of the large IT workforce that the region caters to. But till such time that property prices climb down, the region would have lost some of its erstwhile demand from the average home buyer in Chennai.

Office space absorption drops by 23% this year in top 8 cities

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india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Chennai office space, chennai real estate news, Track2Media, Track2Realty, Track2InfraTrack2Realty: Office space absorption dipped by 23 per cent during 2012 in major cities to 29 million sq ft as corporates remained cautious of expanding businesses amid global uncertainties and slowdown in the Indian economy, property consultant Cushman and Wakefield has said.

The total net absorption for 2012 was recorded at 29.05 million sq ft in the 8 major cities —— NCR, Mumbai, Bengaluru, Chennai, Hyderabad, Pune, Kolkata and Ahmedabad as against 37.73 million sq ft in the previous year, the report said.

The supply of office space has also dropped by 10 per cent at 35.30 million sq ft as against 39.35 million sq ft in 2011.

“The cautious approach by global and Indian companies, in view of a slower economic growth led to a decline in absorption levels,” the consultant said, adding that majority of the companies put on hold their expansion plans.

Chennai saw the highest decline —— down 51 per cent over last year. Bengaluru, a traditionally high absorption market recorded a decline of 24 per cent over last year.

“Almost all locations which are driven by the IT/ ITes and related industries recorded a slowdown in absorption,” C&W said. Bengaluru noted the highest net absorption of 7.29 million sq ft, followed by Mumbai that saw 6.26 million sq ft of net absorption for the year.

Leasing activity (net absorption) declined in all cities except Ahmedabad and Mumbai that saw a notable increase of 38 per cent and 9 per cent, respectively, over the last year.

NCR witnessed absorption of about 4.76 million sq ft, a drop of about 12 per cent from 2011.

“Factors like global uncertainties, slowdown in India GDP, raging consumer inflation and low industrial output, have negatively affected the economic sentiments of corporations operating in India leading to an overall slowdown in absorption,” Cushman & Wakefield South Asia Executive Managing Director Sanjay Dutt said.

Office take-up to increase by 21% in 2013: DTZ

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india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Chennai office space, chennai real estate news, Track2Media, Track2Realty, Track2InfraTrack2Realty: The year 2012, which started on an unenthusiastic note due to the global as well domestic economic turmoil, is now showing initial signs of recovery. Amongst the larger world economies, the US economy recorded a GDP growth of 1.7% between April and June, slightly higher than earlier estimates of 1.5%.

Even though the European debt crises continue to prevail and remain the biggest concern for global economic recovery, the overall scenario seems to be improving. Similarly, on the domestic front, the Indian markets have witnessed an infusion of positive sentiments due to recently announced policy reforms such as allowing 51% FDI in multi-brand retail.

The country is expected to witness a reasonable GDP growth of 5% to 6% in 2012-13. These emerging positive indications are expected to stimulate real estate sector in the country.

The two primary sectors, IT/ITES and BFSI, form 70% of the total office space take-up. In 2013, IT/ITES is expected to grow at 13% and generate USD 110 billion in revenue.

The average per employee workstation space in IT/ITES sector is 80 sq ft. The sector is expected to require additional IT office space of 15.96 million sq ft to accommodate additional work force of approximately 0.2 million. The office space demand from the sector in 2013 is likely to increase by 34%. The average per employee workstation space in BFSI sector is 100 sq ft.

The sector is expected to require additional IT office space of 10.4 million sq ft to accommodate additional work force of approximately 0.1 million. The office space demand from the sector is likely to increase by 5% in 2013.

The total office space take-up in 2013 is expected to be circa 38 million sq ft, representing an increase of 21% y-o-y. This is a substantial increase as compared to the anticipated take-up in 2012, which is expected to witness a drop of 13% y-o-y.

The demand forecast has been generated by analyzing the historic growth rate and forecasted growth projections of the sectors, employment growth trend and per employee earnings. These parameters have exhibited a strong correlation coefficient with the office space take-up forecast for 2013.

Report estimates 180 million sq feet of office demand across 8 cities in next 4 years

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india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Chennai office space, chennai real estate news, Track2Media, Track2Realty, Track2InfraTrack2Realty: Cushman & Wakefield estimates commercial office space demand of over 180 million square feet (msf) in the next five years (2012 – 16) in the top 8 cities of the country. This was released in the annual publication entitled “Evolving Paradigm – Future of Indian Real Estate” in association with Global Real Estate Institute (GRI) at their India Summit 2012. The report also estimates the total expected supply for the next five years in these eight cities as 219. 6 million sqft, basis announced projects and current pace of construction; indicating a condition of excess supply in the coming few years.

The highest demand will be recorded in Mumbai with an estimated 44 msf over the next few five years followed by Bengaluru (31 msf) and NCR (27.8 msf). The top three cities will constitute approximately 57% of the total office space demand. Ahmedabad will record the lowest office demand of approximately 7.8 msf in the next five years, while Kolkata will be finish one but last with demand of 8.4 msf.

Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, “Based on expected recovery of the economy, partly due to global recovery, but largely due to the positive signals being sent out by the Central Government to promote business investments, office space demand is expected to witness a positive growth of 10% in 2013 and 20% in 2014. This is, however, likely to reduce over the next two years (2015-16) drawing from the forecasts that predict a slowdown in global GDP.”

Sanjay continues, “A number of factors will act as catalyst for the growth and sustenance of office demand such as improvements in infrastructure, connectivity and the quality of supply. Additionally, more and more companies are looking at rationalizing their real estate portfolio by relocating and/or consolidating their wide-spread operations, besides actually growing their businesses. This is expected to lead to an increase in leasing activities and also add to the net absorption. Cities such as Bengaluru, Chennai and Pune, which are expected to witness lower demand-supply gap, may also see moderate rental increases over the next 5 years. On the other hand,  NCR, Mumbai and Kolkata that have considerable oversupply may see rental correction in select micro markets during that period. Rental correction  will not take place across the board as local micro-market dynamics such as location, quality, existing occupier profile, access to transportation nodes, etc will play an important role in deciding the rentals vis-à-vis the demand from occupiers.”

Mumbai is also expected to see the highest supply in the next few five years with an estimated 52.6 msf of fresh office space supply followed by NCR (43.8 msf) and then by Bengaluru (31msf) in the next five years. The office market is expected to be oversupplied by approximately 21% in the period of 2012 – 16. The demand to supply gap is expected to be the highest at 40% in 2012 but will reduced to 6% by the 2016. In the period of 2012 – 16, Bengaluru is expected to have to lowest demand – supply gap with supply exceeding by less than 1%, while Kolkata will have the highest gap 64% with supply exceeding demand.

NCR and Mumbai will also experience a high demand – supply gap of 57% and 19% respectively, where supply will exceed demand. Chennai and Pune are among the cities to see lower demand – supply gap with supply only exceeding by 2% and 4% respectively.

The cities of Ahmedabad, Chennai and Hyderabad are expected to see steady increase in both supply and absorption during 2012 – 2016 due to demand from sectors such as manufacturing and services sector. Most companies in these sectors are likely to be cost conscious in the backdrop of moderating economic growth and increasing costs and thus choose locations which offer relatively lower rents. The Western Indian cities namely Ahmedabad and Mumbai are expected to see the double digit growth in absorption levels in the five years horizon, while, growth in absorption levels in most other cities will not breach 5% annual growth during the period.

NCR

NCR is expected to witness supply close to 43 msf in the next 5 years (2012 – 2016). Absorption for the same period is expected to be around 27 msf which means approximately 64% of the upcoming supply is expected to get absorbed. The IT/ITeS and consulting sectors are expected to contribute largely to the expected absorption. In most locations of Gurgaon and Noida, there have been delays in construction deferring the supply time lines to future dates. Also, there is a significant number of under construction and planned developments across the city. With the given demand supply gap, rental correction is expected in the coming years.

MUMBAI

Mumbai is expected to witness the highest cumulative demand and supply the period 2012 – 2016. While demand is estimated to be approximately 44 msf, supply will outstrip demand by over 20%. The demand drivers for Mumbai’s office market will be led by banking, insurance, financial services, consulting, media, mostly in need for large corporate offices.

Whilst traditionally, Mumbai is not a destination of choice for outsourcing companies to set-up their operations, due to cost sensitivities involved, the city is expected to reap the benefits of a large specialised and skilled human resources pool which can be a potential draw for specialised outsourcing sectors such as legal, business consulting and analytics, healthcare, retail, R&D, etc. Also, multinational companies across sectors are expected to contribute to absorption by taking up Grade A space in the city.

Though there are indications that the demand-supply gap for Mumbai may go up to as high 8 msf of excess supply.. This is mainly on account of the slower growth in demand in the as compared to the robust supply additions within the city. Developers may exercise discretion basis the demand trend of the period to control the actual supply that enters the market and ensure better occupancies.

BENGALURU

Bengaluru is expected to witness supply additions of approximately 31 msf in the coming five years, while supply is expected in this period is also going to in the range of 31 msf, leaving the gap between supply and demand to less than 1% of oversupply. The city has witnessed the highest absorption during 2011 and is expected to witness healthy absorption levels in the coming few years as well. It is likely to have the lowest demand supply gap due to slow supply additions and steady absorption levels. Rentals are expected to be stabilize or increase in select locations of the city.

CHENNAI

Chennai is expected to witness supply addition close to 23 msf in the next five years. while supply will be 22 msf. The demand to supply gap is approximately 2% with supply exceeding demand in te next five years. IT/ITeS, manufacturing and services sectors are expected to significantly contribute to the absorption levels. Rentals are expected to be stabilize in the coming few years.

KOLKATA

Kolkata’s office market is expected to witness supply of close to 13 msf in the next 5 years (2012 – 2016). Absorption for the same period is expected to be approximately 8 msf which means approximately 61% of the upcoming supply is expected to get absorbed. Demand is expected to be driven mainly by the IT/ITeS sector. While the city is expected to witness a high demand supply gap, rental correction is expected during the same period.

PUNE

Pune is expected to witness supply of approximately 16 msf from 2012 – 2016. Out of this total demand in the next five years is expected to be 15 msf, with marginal over supply of approximately 4% in this period. Given the ongoing subdued leasing and low supply, the demand supply gap is not expected to be very high in the coming years. The demand is expected to be mainly back by BFSI, media, pharma & healthcare sectors. Rentals are also expected to be stabilize during the same period.

HYDERABAD

In the next five years (2012 – 16), Hyderabad is expected to witness office supply of approximately 25 msf, out of which approximately 22 msf is expected to get demand for office in the same period. Demand is driven by the increase in sectors like  engineering, professional services and technical services in the city. The demand supply gap at approximately 3 msf is not very high due to the buoyant demand and increasing upcoming supply in the segment.

AHMEDABAD

Ahmedabad is expected to witness supply additions of approximately 12 msf in the coming five years which is the lowest amongst the top 8 cities taken into consideration.  Demand is however expected to be only 62% of the total expected supply in the next five year. BFSI and small scale industries are expected to be the key demand drivers that are looking at taking advantage of the prevailing lower rents as compared to those in other cities. The demand supply gap is expected to be at approximately 4 msf for during the same period.

Growing eurozone crisis affecting Indian realty

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india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Chennai office space, chennai real estate newsGrowing eurozone crisis is all set to affect the Indian real estate. It may sound like drawing a parallel between Indian office space prices and what’s happening in North America and Europe, but it has not only dried up the foreign equity participation in the sector in the country, the developments will also affect demand of the products.

According to a recent report by Jones Lang Lasalle, a real estate consultancy, nearly 50 percent of the demand for investment grade office space in India is contributed by the information technology/information technology-enabled services sector.

More importantly, up to 90 percent of revenues of the IT and BPO (Business Process Outsourcing) sector come from North America and Europe, both of which are struggling economically. The US is still limping back to recovery, while Europe is trying to contain the spillover effects of the sovereign debt crisis.

Furthermore, the real estate consultancy noted that over 70 percent of the demand for investment grade office space is contributed by firms that are headquartered overseas. “Many of them thrive on domestic demand. However, demand contraction in those countries will definitely force them to exercise caution,” the note added.

The inevitable conclusion: demand for office space is expected to remain muted in 2012.

Chennai office space demand may dip

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india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Chennai office space, chennai real estate newsThe demand for office space in Chennai is expected to dip, with an expected slowdown in North American and European countries affecting the information technology sector, according to a report by Real Estate Intelligence Service of Jones Lang LaSalle India.

“With Chennai being a major IT and Industrial hub, nearly 60 per cent to 70 per cent of the demand for office space in Chennai is contributed by the IT and ITES and manufacturing sectors. But this will be hit during the second half of this year and also next year, following an expected slowdown in the North American and European countries, whose economies are key to the IT sector’s growth,” the report ‘Chennai Real Estate a Closer Look’ said.

However, on a long term, Chennai office market is expected to absorb nearly four million square feet of office space annually till 2015, the study stated.

The report also stated that 2011 had ushered in renewed interest in non-IT office space in Chennai – especially from firms wishing to relocate their offices to better grade buildings. The expected fresh supply of non-IT office space should witness active absorption at the right rentals.

There will be greater demand for investment grade office spaces within the city, since there is a severe dearth of high quality office buildings in the central areas, the report said.

The Chennai office market has witnessed remarkable growth which is due to the offices built for the IT industry (as IT Parks or IT Special Economic Zones), which constitute 86 per cent of the operational office stock in Chennai.

“With 17 million sq ft of supply expected during the third quarter of 2011 to the fourth quarter of 2015, Chennai will continue to add more office space, and attain the current size of office stock of Mumbai during 2015,” the report said.

Adequate volumes of office supply will keep hitting the markets every quarter, keeping the segment interesting for occupiers as well as investors, it added.

Chennai’s high streets continue to remain as a favourite location for retailers as conversion rates in high streets are higher compared with those in malls. The neighbourhood of premium residential catchments, ample space for a hassle-free car park and proximity to the city centre are the key drivers of demand for high-end high streets. The high streets of Khadar Nawaz Khan Road (KNK Road) and Wallace Garden Road have emerged as important retail destinations for global luxury, fashion and premium brands, the report added.

The suburban area of Chennai is also witnessing significant residential activity, with nearly 71,000 residential units under construction and likely to enter the market in the next three to four years.

“This indicates the potential of Chennai’s suburbs to emerge as an attractive retail destination. Bigger residential catchments in the suburban areas combined with more reasonable rentals compared to those in the prime city are expected to act as key driving forces for retailers to increase their presence in the suburban precincts of Chennai in the long term,” the report added.

The additional mall supply is likely to be launched with high occupancy levels resulting in overall stability in the mall vacancy rate in the city. With more mall completions anticipated over the next three years, the city’s mall footprint is expected to rise annually from 2011 onwards. This trend is supported by the entry of malls by a few renowned developers such as Prestige Group, Phoenix Market City, PS Srijan and Marg Constructions, the report said.