Chennai office market overview jan 2015

1 Research & Forecast Report | January 2015 | Colliers International

Developers remain cautious due to low absorptionChennai witnessed improved occupier sentiment as leasing activities gained momentum during the end of the year. Overall, transaction volumes decreased and the office market witnessed about 4.11 million sq ft of office absorption which is about 24% less than the last year absorption of 5.43 million sq ft. Occupiers from the IT/ITeS sectors were the primary contributors to this demand followed by BFSI and Pharma. Guindy, despite being the most preferred sub-urban micro market, did not see much new lease transactions due to very limited vacant stock available and most of this demand is shifted to OMR which is emerging as the second most preferred suburb. A number of large floor plate deals were concluded on this stretch. For instance, around 0.1 million sq ft was leased by Tata Consultancy Services and Scope International in Ramanujam IT SEZ and Futura Tech Park respectively. Another big ticket deal was concluded by Capegemini admeasuring 0.07 million sq ft in Prestige Cyber Towers.

Construction continues to remain stagnant and the city witnessed completion of only 0.8 million sq ft of office space which is significantly less than the last 5 year average of about 4 million sq ft. A number of developers deferred delivery timelines of their under construction projects in 2014 in view of lower demand. Limited new supply addition led overall Grade A vacancy levels to decline to below 20% this year. The available supply of Chennai Grade A office property market remained at approximately 12.5 million sq ft By submarket, OMR accounted for 47% of the available supply, followed by Ambattur 24% and CBD 16%. Approximately 15 million sq ft of grade A office space is under various stages of construction however, the city will see limited supply addition as developers continue to defer

City Office Barometer

Research & Forecast Report

Chennai | OfficeJanuary 2015

Rental Values

*Indicative Grade A rents in INR per sq ft per month**OMR I (Madhya Kailash – Perungudi-Toll gate I) ***OMR II (Thoraipakkam – Sholinganallur) & OMR III (Semmencherry – Siruseri)

MICRO MARKETS RENTALVALUE*

% CHANGEQoQ YoY

CBD 60 - 80 0% 0%

Guindy 50 - 60 0% 4%

Ambattur 20 - 30 0% 0%

OMR I** 45 - 60 0% 4%

OMR II & III*** 25 - 45 0% 0%

GST Road 35 - 40 0% 0%

INDICATORS 2014 2015

Vacancy

Absorption

Construction

Rental Value

Capital Value

2 Research & Forecast Report | January 2015 | Colliers International

supply until substantial demand returns in the market.

Despite improved demand, rents and capital values for Grade A office space remained stable across all micro-markets. Rental values remained stable due to tight corporate budgets and reduced demand for office space.

Trends to watch for in 2015

We anticipate renewed demand for office space, led by the IT/ITeS sector. Guindy and Ambattur being preferred locations will see greater demand and thus can witness an upward pressure in rental values. Similarly the OMR until Perungudi is also a preferred IT/ITeS destination and will be impacted similarly. By contrast, rents on the farther stretch of OMR from Sholinganallur to Navalur and Siruseri to Sipcot are expected to remain stable.

Source: Colliers International

Top 5 Transactions of 2014

Key Under Construction Projects

CLIENT BUILDING NAME AREA (SF) LOCATION LEASE / SALE

Accenture Shriram Gateway SEZ 220,000 GST Road Lease

BNP Paribas Center Point 2 180,000 Guindy Lease

TCS Ramanujam IT SEZ 109,000 OMR Lease

Citi Bank Ramanujam IT SEZ 104,000 Taramani Lease

Astra Zeneca Ramanujam IT SEZ 104,000 Taramani Lease

BUILDING NAME DEVELOPER AREA (SF) LOCATION POSSESSION

SP InfoCity, OMR Phase 2 Shapoorji Pallonji Group 1,200,000 OMR 2015

Chennai One (BPO Park) Phase 2 ETL Developers 1,100,000 OMR 2015

Estancia Block B2 L&T & Arun Excello 469,000 GST Road 2015

Notes:

1. Office Market: Prime office properties in Chennai are located in four principal sub-markets: the CBD, SBD (Guindy, Manpakkam,Velachery) and the PBD (Old Mahaballipuram

Road (OMR).

2. Rents/Capital Value: Market average of indicative asking price for Grade A office space.

3. Available Supply: Total Grade A office space being marketed for sale or lease in surveyed quarter.

4. City Barometer: Represents increase, decrease or stable scenario; as compared to previous quarter.

5. All the figures in the report is based on market information as on 25th December 2014.

Average Rental And Capital Value Trend120

9,000

10,500

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Forecast

New Supply, Absorption And Vacancy Trends10 25%

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2

02010 2011 2012 2013 2014 2015F 2016F

New Supply (In Mln sqft) Absorption(In Mln sqft) Vacancy(In %)

2008

2009

2010

2011

2012

2013

2014

2015

2016

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Sachin Sharma Assistant Manager | Research

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