Gross leasing activity declines 18 pct in Chennai in 2018

Chennai recorded 3.9 million sq. ft. of gross leasing in 2018, a decline of 18% from the previous year. This is likely due to low availability of Grade A office space in preferred locations such as Old Mahabalipuram Road (OMR) pre-toll and Mount Poonamallee High (MPH) Road. However, it's expected the gross leasing over 2019-2021 to grow at a robust average annual pace of 4.5 million sq. ft. 2018 also witnessed a decline in number of transactions as well as average transaction size from 22,500 sq. ft. to 19,000 sq. ft.

Despite this slowdown, in view of the robust supply pipeline in preferred locations, it's expected the leasing momentum to be well supported by supply over 2019-2021. "As anticipated, demand for Grade A office space in Chennai continued to grow strong, and the year 2018 saw both the established and emerging office corridors show robust traction. Coworking and new firms were the other significant feathers in the cap, adding to the overall absorption. The city is poised to continue this run, with large firms establishing and expanding their operations," says Shaju Thomas, Director, Office Services (Chennai) at Colliers International India.

Due to the low availability of Grade A office space, compared to 2017, OMR Pre Toll witnessed less leasing, accounting for 20% of the total 2018 leasing volume, whereas in 2017, around 32% of take-up was in this micromarket. OMR Post Toll saw similar leasing momentum to 2017, accounting for 19% of the total leasing volume. In contrast to other micromarkets, Guindy is characterized by excellent road and metro connectivity, hence it witnessed increased leasing compared to 2017, representing 17% of 2018 leasing volume. Other micromarkets such as MPH Road and the Central Business District (CBD) also witnessed increased traction, accounting for 19% and 16% of the total 2018 leasing volume, respectively.

Demand for Grade A office space was driven by expansion and consolidation of companies in the Information Technology and Information Technology Enabled Services (IT-ITeS) sector, accounting for 37% of the total leasing volume in 2018. Banking, financial services and insurance (BFSI) witnessed heightened traction, accounting for 14% of the total leasing volume. Other sectors that garnered occupier interest in 2018 were engineering and manufacturing with 7%, and the media sector with 5% of total leasing volume. Flexible workspace operators almost doubled their space take-up YoY, accounting for 9% of leasing volume.

2018 witnessed a substantial addition of around 2.5 million sq. ft. of Grade A office space, a 41% increase from the previous year. Based on scheduled timelines of Grade A developers in the city, Colliers' projects a robust supply pipeline of around 20 million sq. ft. over 2019-2021. OMR Post Toll is scheduled to account for around 50% of the total upcoming supply over 2019-2021, providing a good opportunity for occupiers looking to relocate or consolidate and as hedge against an increase in rents. However, the preferred location for technology occupiers, OMR Pre Toll, is witnessing around 20% of the upcoming supply over 2019-2021.