Chennai office market snapshot 2013 report

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HIGHLIGHTS

• The Chennai office market performed remarkably well in 2013 with 5.2 million sq. ft. cumulative office leasing, 31% up as compared to the last year.
• While tenant relocation and consolidation have continued to be an important driver of the market, corporate expansion accounted for an equal proportion of absorption in 2013.
• New office supply was over 4.14 million sq. ft., which was 18% up from last year.
• IT/ITeS sector remained the major office occupier with 78% share of the total absorption.
• We anticipate the same level of absorption momentum in the coming quarters, although it will largely be influenced by the global economy and IT/ITeS sector performance in 2014.

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Chennai office market snapshot 2013 report

  1. 1. Chennai Office Market Snapshot 2013
  2. 2. Chennai Office Market Snapshot 2013 Quarter-on-Quarter Absorption Highlights Despite the economic gloom, the Chennai office occupier market performed remarkably well in 2013. Office space absorption in this market amounted to over 5.2 MN SF, 31% up from 2012, with the improvement primarily driven by a number of large leasing transactions ranging between 50,000 to 600,000 SF in special economic zones (SEZs). While tenant relocation and consolidation renegotiations have continued to be an important driver of the market, corporate expansion accounted for an equal proportion of absorption in 2013. 1.8 1.69 1.67 1.6 AVERAGE ABSORPTION 1.4 IN MN SF 1.2 0.99 1.0 0.89 0.8 0.6 0.4 0.2 0.0 1Q 2Q 3Q 4Q Demand Industry Wise Absorption Approximately 17% of the total absorption of more than 31 MN SF across top 6 cities in India was contributed by Chennai. IT/ITeS sector remained the major office occupier with 78% share of the total absorption, followed by other sectors such as BFSI, Engineering and Manufacturing. SEZs such as Ramanujam IT Park and DLF IT SEZ, together accounted for more than 2 MN SF of office space. Others 9% Manufacturing 4% Engineering 4% 2 BFSI 5% Among the micro markets, Old Mahabalipuram Road (OMR) and Guindy remained the preferred office destinations due to availability of premium office space with state-of-the-art amenities at affordable rentals. 1 IT/ITeS 78% Top 10 Transactions of the Year Client Building Name Developer / Landlord Amazon SP Infocity Shapoorji & Pallonji HP Ramanujam IT SEZ Fidelity Location Transaction Quarter 645,000 Perungudi 3Q TRIL 600,000 OMR 1Q Ramanujam IT SEZ TRIL 270,000 Taramani 3Q Mindtree Ramanujam IT SEZ TRIL 200,000 OMR 1Q Capgemini Prestige Cyber Tower Prestige Group 200,000 Karapakkam 4Q L & T Infotech DLF SEZ DLF Ltd. 189,000 Manapakkam 3Q GAVS SKCL Chaitanya Builders 140,000 OMR 4Q TCS Ramanujam IT SEZ TRIL 100,000 OMR 1Q Slash Support Shriram Gateway Shriram Group 100,000 GST Road 2Q Flextronics 1 Area (In SF) RMZ Millenia RMZ Corp. 80,000 OMR 1Q Chennai Office Market Snapshot 2013 | Colliers International
  3. 3. Supply & Vacancy New supply increased significantly in 2013 with the delivery of over 4.14 MN SF of new Grade A space which is approximately 18% more than the last year’s new space addition of 3.5 MN SF. New Supply, Absorption & Vacancy 10 30% FORECAST Rental & Capital Values 8 24% 6 18% 4 12% 2 Overall vacancy rates were recorded at 22% at city level, marginally up from last year’s figure of 21.5% with a significant number of project completions in 2013. More than 13 MN SF of Grade A office supply was available for fit-out this year. Most of this supply was concentrated along OMR followed by Ambattur and Guindy. 6% 0 During the year, rentals remained stable, as compared to the previous year, in almost all the micro markets despite significant increase in absorption primarily due to the high vacancy levels. 2010 2011 2012 New Supply (In MN SF) 2013 2014 F Absorption (In MN SF) 2015 F 0 Vacancy (In %) Capital values this year increased by 8% year-on-year (YoY across all the micro markets, barring Ambattur where capital values declined by 6% YoY. Average Rental Trends & Forecast 2014 Prognosis We anticipate the same level of absorption momentum in the coming quarters, although it will largely be influenced by the global economy and IT/ITeS sector performance in 2014. With large supply in the near future, rental values are expected to remain stable. Demand will remain upbeat in SEZs with most of the new supply expected to be leased as soon as it enters in the market. 60 FORECAST 50 40 30 20 Preferred micro markets such as OMR and Guindy will continue to attract occupiers due to availability of good options in these locations. However, there will be downward pressure in locations on fringes of the city, beyond Perungudi due to lower tenant preference as a result of various issues such as lower availability of talent pool, infrastructure and distance from the city centre. Overall, the vacancy levels in Chennai are expected to remain high due to which the rents will remain favourable to tenants during 2014. 2 Chennai Office Market Snapshot 2013 | Colliers International 10 0 2008 2009 2010 2011 2012 2013 2014 F Average Rental Trends (INR Per SF Per Month) 2015 F
  4. 4. Primary Authors: 62 countries on 6 continents United States: 140 Canada: 42 Latin America: 20 195 EMEA: 85 $2 Surabhi Arora Associate Director | Research +91 124 456 7500 surabhi.arora@colliers.com Amit Oberoi National Director I Valuation & Advisory Services & Research Sachin Sharma Assistant Manager I Research For Office Services: George McKay South Asia Director I Office & Integrated Services george.mckay@colliers.com billion in annual revenue Vikas Kalia National Director I Office Services vikas.kalia@colliers.com 1.12 Kaushik Reddy Director I Office Services kaushik.reddy@colliers.com 13,500 Technopolis Building, 1st Floor, DLF Golf Course Road, Sector 54, Gurgaon - 122 002 TEL +91 124 456 7500 billion square feet under management professionals About Colliers International Colliers International is a global leader in commercial real estate services, with over 13,500 Corporation, Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, colliers.com Copyright © 2014 Colliers International. ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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