February 15, 2024: Chennai has recorded more than more than 2x leasing activity in 2023 as compared to the annual average of the last four years, according to a recent Colliers India. Real estate asset classes like industrial and warehousing, housing and data centres also saw strong traction during the year. Tamil Nadu state has seen about $2,000-3,000 million of overall FDI inflows in each of the last two fiscal years. The momentum of inflows is likely to continue in the next few years and trickle down to the real estate sector, accelerating growth of various asset classes, the report said.
Chennai’s office leasing records an all-time high in 2023
According to the Colliers India report, during 2023, Chennai recorded the highest-ever office leasing with 10.5 million square foot (msf) of gross absorption and emerged among the top three list for the first time alongside Bangalore and Delhi-NCR. Technology and BFSI players drove the leasing during 2023 accounting for about half of the total share in leasing activity. The report also highlighted that leasing by flex players witnessed 3X annual increase in the city in 2023. Amidst robust demand, vacancy levels dipped a significant 3.7pp YoY and stood at 16.3% at the end of the year.
The report mentioned that demand momentum is expected to continue into 2024. Furthermore, the city has a pipeline of 4-5 msf of new Grade A office developments at different stages of construction. Majority of the upcoming supply is likely to be seen in MPR and PTR micro markets of the city. Pursuant to the recent floor-wise denotification of SEZs, Chennai is likely to see additional supply of office space. As of 2023 end, Chennai had about 26.5 mn sq ft of SEZ office space, at a vacancy level of about 19%. We expect incremental leasing from these spaces as well during the next few quarters. According to the report, supply of Grade A office spaces in Chennai was at 6.9 msf, recording a 14% share in the market.
Arpit Mehrotra, managing director, office services, Colliers India, said, “The real estate market of Chennai has exceeded expectations during 2023 and is poised for sustained growth in the next few years. The office market has recorded an impressive 10.5 msf of gross absorption during 2023, driven by OMR Zone 1 and MPR micro markets in the city. Global capability centres (GCCs) also viewed Chennai as an attractive location for space take-up led by cost-effective rentals and presence of quality Grade A stock. The demand momentum, particularly during the second half of the year 2023, will pave way for an optimistic start to 2024. Amidst healthy demand, office rentals are likely to firm up by about 3-5% in the next few quarters.”
Chennai’s industrial and warehousing leasing trends in 2023
The Colliers India report highlighted that with more than 5 msf of gross absorption in 2023, Chennai witnessed robust industrial and warehousing leasing demand, an 85% YoY rise, outperforming Delhi-NCR. The city accounted for about 20% share in the overall leasing across the top five cities. Key micro markets like Oragadam, NH-48 and NH-16 of Chennai saw the bulk of the demand during the year. While 3PL players dominated the leasing activity with about half of the demand, Engineering players accounted for about 38% demand. The supply for industrial and warehousing leasing in Chennai was at 4.7 msf, a 20% city share for supply.
Vimal Nadar, senior director & head of research, Colliers India, said, “The city is seeing fast paced growth with infrastructural upgrades such as the upcoming metro and flyovers that will fuel commercial & residential real estate across key locations of the city. Areas around CBD, OMR Zone 1 stretch of Madhya Kailash–Perungudi and MPR stand to benefit the most. The proposed increase in FSI along the Chennai metro and MRTS corridors holds immense potential for unlocking real estate value for developers and investors along the corridors in the city. Interestingly, Chennai will continue to build upon its data center capabilities and attract significant DC investments in the next 3-4 years”.
Chennai saw highest growth in Data Centre capacity during the post-pandemic period
According to Colliers India report, with over 110 MW, Chennai accounts for about 14% of the data centre capacity as of 2023, second highest in the country followed by Mumbai. The city witnessed significant investments for DC in the last few years and with a 3X rise, saw the highest growth in DC capacity in the post-pandemic period. Supported by the upcoming infrastructural growth, presence of sea cables and investments, the sector is likely to see significant rise in DC supply in the next 3-4 years.
Impact on residential segment
The report mentioned that a strong rebound in the commercial segment is translating into heightened activity in the residential segment. On account of favourable demand-supply dynamics, average housing prices in Chennai have seen a modest annual increase of about 3-5% in 2023. Micro markets like North Ambattur and North and West Thiruvallur have witnessed the highest rise in housing prices. The upcoming metro corridors in (coastal) Chengalpattu and (West) Poonamallee sub-markets are expected to firm up residential demand in these markets. With increasing demand for larger apartments, sale of 3 and 4 BHKs are likely to gain traction in 2024.
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