March 12, 2024: Global companies are increasingly venturing into Chennai for their expansionary endeavours, with existing firms resorting to flight-to-quality leasing, according to CBRE South Asia’s latest report Diversification series: Rise of Chennai. The share of global firms in the overall office leasing in Chennai has consistently remained above the 50% mark in the last six years, and this trend is expected to persist in the upcoming years.
One of the key reasons why Chennai is also emerging as a preferred office destination is because global firms are setting up their Global Capability Centre’s (GCCs). Due to a vast talent pool, thriving manufacturing capabilities and availability of quality office space at competitive rentals, Chennai has gained prominence amongst global companies to establish their global capability centres. A high number of colleges and universities offering science, technology, engineering and mathematics (STEM) courses have been a key enabler for GCCs in the city. Global firms are predominantly occupying spaces within developments situated in OMR Zone 1 and Zone 2.
From past three years, American semiconductor manufacturing firms, EMEA-based oil and gas companies and machinery manufacturers from both the regions led the engineering and manufacturing (E&M) leasing activity accounting for two-third of the total office leasing, while BFSI leasing is mostly dominated by American financial services and investment firms followed by domestic banks. The implementation of incentives, including capital subsidies, training support, reduced land costs and enhanced quality certifications, as part of Tamil Nadu’s semiconductor and advanced electronics policy, 2024, is anticipated to amplify leasing activity in the E&M sector. During 2023, the E&M and BFSI companies witnessed about ten very large-sized office deals (>2,00,000 sqft), a significant increase compared to one or two such deals typically closed in previous years.
In 2023, 46% absorption in overall office space was led by American companies followed by 34% domestic firms. As per the report, the E&M sector led the absorption with 28% followed by BFSI with 22% share in 2023. The robust industrial and manufacturing landscape in the city has supported the leasing of office spaces by firms involved in semiconductor manufacturing, oil and gas exploration that are seeking to digitise their services. In addition to the E&M sector, the availability of fresh and experienced engineers and financial professionals in the city has fueled the expansion of global banks and financial institutions. From the last three years, financial services and investment firms took the lead within BFSI leasing activity contributing to nearly three-fourth share in overall office leasing, followed by banks and insurance firms.
Over the last few years, Chennai has garnered significance as an office market to emerge as third- highest in terms of office absorption in 2023. The southern city is emerging as a compelling choice for occupiers, alongside its more established counterpart cities such as Delhi-NCR, Mumbai, Bangalore and Hyderabad. The report highlights the city recorded its highest-ever leasing and decadal high supply with a total absorption of 10 million square foot (msf) and supply stood at 6.4 msf in 2023. Chennai represents 10% of India’s overall commercial office stock. The office stock in 2023 was at 87 msf in 2023. It is interesting to note that 38% of overall office stock is green-certified in the market. This shift is attributed to a confluence of factors that have bolstered the city’s appeal and competitiveness.
Chennai has seen the emergence of campus-style modern office developments in the last few years, led by the appetite of global and Indian firms for such spaces. During 2023, the city witnessed heightened new developments, offering a range of space options to occupiers, enhancing absorption. Robust occupier confidence in the market and an integrated public transportation system within the city have resulted in well-distributed office activity across the city. The city’s OMR Zone 1 continues to be the most active micro-market, followed by OMR Zone 2. The average size of the newly completed developments more than tripled to reach 4,90,000 square foot (sqft) in 2023, compared to 1,46,000 sqft in 2018. Furthermore, the average deal size also experienced a substantial increase, rising from 21,000 sqft in 2018 to 35,000 sqft in 2023.
In 2023, 30% of the top five developers lead the share in completed office stock- DLF, Tata Realty and Infrastructure (TRIL), Xander Group, CapitaLand and ETL Infra. In recent years, developers such as DLF, Brigade Group, CapitaLand, ETL Infra, Olympia Group, Mindspace REIT and RMZ Corp have unveiled their large-sized office developments exceeding 1 msf in key micro-markets including OMR Zone 1, OMR Zone 2, MPH Road and Off CBD.
Anshuman Magazine, chairman and CEO – India, South-East Asia, Middle East and Africa, CBRE, said, “Chennai’s real estate market has experienced exponential growth over the past decade. Seeking to attract investment and propel job creation, the government has actively implemented sector-specific policies, significantly enhancing Chennai’s real estate landscape. Tailored initiatives for industries like engineering and manufacturing, fintech, IT, aerospace and electronics have fueled a substantial upsurge in office space absorption during 2023. This surge positions Chennai as a key contributor to India’s overall office market, demonstrating the success of these government interventions across diverse sectors.”
Ram Chandnani, managing director, advisory and transaction services, CBRE India, said, “Chennai’s charm as an investment destination, particularly for global and domestic manufacturing firms, is expected to drive innovation and technological advancements. With companies increasingly adopting innovative technologies such as Artificial Intelligence, SaaS, Big Data and IoT, Chennai is positioned at the forefront of evolving trends. The growth of BFSI and E&M GCCs in Chennai is likely to further reshape the city’s office real estate momentum”.
Top 5 office micro markets in Chennai
| Micro market | Description | Office stock |
| Central Business District: Anna Salai, Nungambakkam, RK Salai, T Nagar and Alwarpet, etc
|
CBD is the city’s oldest market where over 80% of the office developments are more than a decade old. Its strategic location, well developed social and physical infrastructure and connectivity to prime residential areas contribute to its prestigious business image. | ~10 msf |
| MPH Road: Mount Poonamallee High Road
|
In the last decade, this micro-market near Guindy in Off-CBD has emerged as a preferred commercial hub, offering quality office spaces, robust infrastructure, with over two-thirds of its office spaces sourced from SEZs, predominantly developed by DLF
|
~12 msf |
| Ambattur: Ambattur, Ambattur Industrial Estate and Padi
|
Despite active IT developments located in this market, this peripheral micro-market maintains its appeal, especially for E&M companies due to its proximity to industrial areas. | ~5 msf |
| OMR Zone 1: Taramani to Perungudi Toll
|
This micro-market stands out as the most active in terms of both supply and absorption, boasting the lowest vacancy levels. Most of the office space in this MM caters to the IT segment, with IT parks comprising nearly 70% of the entire stock.
|
~25 msf |
| OMR Zone 2:
Perungudi toll up to Sholinganallur and Pallavaram to Thoraipakkam
|
Including PT Road, this micro-market stands as one of the most active in the city, where nearly two-third of the stock comprises Non SEZ spaces. In the upcoming supply, this market is poised to dominate, attracting a larger share and witnessing increased interest from occupiers.
|
~15 msf |
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Dhwani is a content management expert with over five years of professional experience. She has authored articles spanning diverse domains, including real estate, finance, business, health, taxation, education and more. Holding a Bachelor’s degree in Journalism and Mass Communication, Dhwani’s interests encompass reading and travelling. She is dedicated to staying updated on the latest real estate advancements in India.
Email: [email protected]
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