Chennai sees dip in office space absorption, new completions in 2021 but warehousing segment shines

[ecis2016.org] Even though landlords were extra liberal towards the tenants in a bid to woo them, it did not translate into more Grade-A office spaces in Chennai being taken up.

Amid a cautious approach towards pre-commitments for new office buildings, the Chennai commercial property market saw net absorption and new completion going down in 2021 as compared to 2020. Even though landlords were extra liberal towards the tenants in a bid to woo them, it did not translate into more Grade-A office spaces in Chennai being taken up.

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This indicated a slight lack of confidence among corporate occupiers in the city in 2021 as they went back to their drawing boards to chart out more cautious office leasing plans.

Office space net absorption in Chennai in 2021

The net absorption in the Chennai office market went down about 5% in 2021 at 2.1 million sq ft (msf) as against 2.2 msf in the previous year. The new completions in Chennai’s commercial property market saw a whopping 73% decline in 2021 at just 1 msf, as compared to 3.7 msf seen in 2020, according to a report by JLL India.

Source: JLL India

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As the work-from-home regime continued in 2011, vacancy levels in Chennai went up to an average of 9.4% in 2021 as compared to an average of 8.25% in 2020. The average rent in 2021 in Chennai’s commercial properties remained almost the same in 2021 at Rs 64 per sq ft per month as compared to an average of Rs 63.55 per sq ft per month in 2020, according to a report by JLL India.

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Chennai’s commercial space micro markets

The secondary business district (SBD) and SBD OMR micro markets remained the active commercial property markets in Chennai in 2021. They contributed to most of the leasing activity in Chennai in 2021. The main occupiers in Chennai in 2021 were the IT/ITeS, e-com and BFSI sectors, which continued to expand their footprint in the city. New supply, which is scheduled in 2022 and beyond, is largely in the SBD and peripheral business district (PBD) OMR submarkets. Major new supplies of Grade-A office spaces in Chennai is being constructed by builders like RMZ and Embassy.

Scheduled completions in Chennai’s commercial property market

Many upcoming commercial buildings in Chennai are scheduled to be completed in 2022. These include RMZ One Paramount in SBD, with a gross leasable area of 1.9 msf, Olympia Cyberspace in SBD, with a gross leasable area of 1.1 msf, DLF DownTown Phase 1 in SBD OMR, with a gross leasable area of 1.0 msf and Shriram Gateway A2 in PBD, with a gross leasable area of 0.5 msf.

Then there is ‘Embassy TechZone Block 1’ in PBD OMR, having a gross leasable area of 0.6 msf. It is scheduled for completion in 2023.

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Warehousing and logistics property market in Chennai

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Chennai witnessed net absorption of 4 msf of warehousing and logistics space and 5.1 msf of new supply in 2021, according to a report by CBRE.

The 3PL sector accounted for 42% of the net absorptions in 2021, followed by automotive industry at 12% and the retail sector at 11% in 2021, according to the report by CBRE.

The prominent deals in Chennai warehousing and logistics space market were that of Royal Enfield absorbing 4 lakh sq ft on rent in the ‘Independent Warehouse’ located in the northern corridor in the city. Another major deal was that of Mahindra Logistics taking up 2 lakh sq ft space in the ‘NDR Warehousing’ located on Western Corridor-1 of the city. Another prominent deal was signed by Reliance Retail taking up 2 lakh sq ft space in ‘IndoSpace Industrial Park’ located on Western Corridor-1, says a report by CBRE. The 3PL and retail industries are expected to do well in 2022 and take up more warehousing space in the city. There are also more completion of warehouse facilities scheduled along the Northern Corridor and Western Corridor-1 in Chennai city in 2022.

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