Chennai to witness 4.5 mn sq.ft. office leasing in 2022: Savills India report

February 9, 2022: Chennai is likely to clock in absorption of around 4.5 mn sq. ft. across micro-markets. Despite concerns around the new strain of the virus and the consequent economic disruption, leasing activity is likely to improve marginally as compared to 2021, according to International real estate advisory firm Savills India.

Outlook for Chennai office market

• 2022 is likely to witness around 4.5 mn .sq. ft. of transactions across micro-markets
• Leasing activity is expected to be driven by the IT sector, along with the engineering and manufacturing, and BFSI segments. Flexible spaces are expected to witness increasing interest from occupiers
• 2022 is likely to witness incremental supply of around 10-11 mn sq. ft.
• A vast majority of upcoming supply is expected in the key micro-markets of Pallavaram– Thoraipakkam Road (PTR), OMR pre-toll and MPR. Around 40% of planned supply for 2022 is a spill-over from the pipeline of 2021
• The overall stock of Grade-A office buildings in the city is most likely to cross 86 mn sq. ft. in 2022
• Average rentals are likely to remain stable across micro-markets, on account of sustained occupier interest in the short to medium term

Key Highlights of 2021 for Chennai office market

• Chennai witnessed leasing activity of 4.0 mn sq. ft., denoting a 6% YOY decline
• The last two quarters of 2021 witnessed an increase in leasing activity as compared to the relative lull of the five quarters preceding Q3 2021. Q3 and Q4 2021 witnessed transaction activity of 1.7 mn sq. ft. and 1.0 mn sq. ft. respectively as compared to average leasing activity of 0.8 mn sq. ft. from Q2 2020 to Q2 2021.
• 64% of the overall demand in 2021 was concentrated in the secondary business districts of Old Mahabalipuram Road (OMR) pre-toll, Mount Poonamallee Road (MPR) and Guindy. The Central Business District also witnessed significant traction and had a 14% share in citywide demand, an increase from the 10% share in 2020
• Like 2020, the technology sector continued to remain the most significant demand driver in 2021, contributing to more than half of the city’s real estate requirement.
• Manufacturing and financial service had a share of 12% and 11% respectively. The coworking segment, improved its share from 5% in 2020 to 8% in 2021
• Supply of 0.9 mn sq. ft. were recorded in 2021
• Overall vacancy in the city increased marginally and stood at 13.2% at the end of 2021
• Average rentals in the city have been range bound for much of 2021 except select locations. While micro-markets such as MPR and pre-toll OMR have witnessed a 3% decline in average rentals, Ambattur and CBD have witnessed an upward movement in average rentals by 3%. The post-toll OMR market has meanwhile remained stable as compared to 2020.
• The second half of 2021 witnessed closure of the five largest deals of the year which accounted for 28% of the overall demand of 2021
• Leasing activity was dominated by mid-sized deals (25,000-99,999 sq. ft.). The share of such deals increased from 18% in 2020 to 39% in 2021. Almost 30% of the mid-sized deals of 2021 were witnessed in the suburban micro-market of Guindy, with IT accounting for more than half of the same. This is a marked deviation from 2020, which had seen more than 60% large-sized deals (100,000 sq. ft. or higher).

Anup Vasanth, MD, Chennai, Savills India said, “Despite concerns around the new strain of the virus we expect leasing activity in the current year to surpass 2021. There are substantial precommitments from clients for space take up this year. The upcoming new supply being added to the stock this year will cause a rise in city vacancy. We see positive activity from coworking operators for space take-up in standalone buildings in CBD/SBD and within large campuses. We are also witnessing heightened demand from occupiers in Tier 2 locations of Tamil Nadu.”