Chennai office uptake behind housing demand

Bottom Line: Chennai office space uptake is catalyst to its residential demand in the days to come.

When Muralidharan had to set up his business in one of the key cities of South India, this Kannada manufacturer preferred to have his corporate office in Chennai. Prima facie, it may appear to be an impulsive decision keeping in mind the traditionally preferred locations of Bengaluru, Hyderabad and even Coimbatore. However, the business man in him had a knack of property analyst and he knew he was betting over a market for long-term.

“Chennai is probably the most under-rated cities among the business destinations of South India. But no other city has the kind of medium to long term potential as Chennai. The cost of doing business per sq feet is way less than other competing cities, the rentals are pretty reasonable, supply is limited as of now, and the real growth is ahead and not behind,” says Muralidharan.

Most of the analysts active in the property market in this part of the world would agree with this business man. The fact of the matter is that the real estate in general and housing market in particular has till only recently been driven by the local demand. That, however, is changing fast and the expat workforce is changing the demand and supply dynamics of the city.

As a matter of fact, Chennai in recent times has been witness to 92% growth in office space absorption, as per a report by JLL India. This is despite the fact that the supply side of commercial spaces has been limited in the city. Chennai happens to be one of those key cities where the demand-supply gap in the commercial spaces is the least.

Chennai ahead of competition curve

Office space absorption higher in Chennai

Supply muted in Chennai; thus no demand-supply mismatch

Residential uptake in Chennai

Chennai among the 5 globally competitive cities of India

Does it give any clue as to where the property market of the city in general, and commercial spaces in particular, would lead to. Well, most of the analysts would agree with the fact that the office space is the prime determinant in the economic cycle of real estate. It is the absorption of office space that defines the demand of housing units in the given city and that further leads to consumption spending in retail.

So, looking at the absorption and growth potential of Chennai office market one could easily vouchsafe that the housing market of the city is up for grabs. More importantly, as more and more businesses are evaluating their logistics and cost of doing business, it is quite evident that the next growth zone for the businesses would be Chennai.

M Karthik, a local property agent, points out that despite the limited supply of office spaces in the city, the cost of doing business here is around 40% lesser than the cities like Bengaluru. He points out that with many new launches in the pipeline Chennai would be a preferred place for commercial real estate and that would lead to demand of housing units in the city.

“Irony with Chennai for long has been the reality that the residential market was largely driven by the local population. The expat work force for long did not think of settling down in the city. Of course, there are reasons behind it. But now that Chennai is fast catching up with leisure & lifestyle options the corporates do not mind setting up shops here and the housing market is attracting cosmopolitan expat buyers as well,” says Karthik.

Today, Chennai is the third best market for office space absorption in South India, after Bengaluru and Hyderabad. But in terms of supply it is far less than the two markets that are nearing to saturation. In contrast Chennai is yet to be witness to its peak cycle.

The factors that support Chennai long-term growth story of commercial spaces and promise to ignite housing market are improving infrastructure, enhanced employment, and strong talent pool, especially in the IT sector.  Chennai also happens to be among top 5 Indian cities that are globally competitive, with Bengaluru, Mumbai Hyderabad and Delhi-NCR being the other four cities. 

Facts speak for themselves. Even in the slow launch & sales during the year 2018 the data by ANAROCK says in the residential segment Chennai led new launch supply by 98% increase. The city has also been witness to 20% increase in housing sales.

Another report by property consultant Knight Frank says that after five years, the Chennai residential market has grown by 3% year-on-year (yoy) in 2018. The year saw sales (housing units) of 15,986 when compared to 15,520 units in 2017. The year 2018 saw 10,373 launches (housing units) and an increase of 12%. In 2017, new launches stood at 9,235.

At a time when the developers across the cities are struggling to either cope up or align with the emerging regulatory compliances like the RERA, these numbers clearly indicate that Chennai has not only been among the front runners in compliances and best practices but also ahead of the competition curve as far as the launches and absorption are concerned.

Ravi Sinha @ravitrack2media

Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.  

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