Knight Frank India:Office space provide strong support for Chennai realty; Residential market finds a new bottom in 2016

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Knight Frank India  launched the sixth edition of its flagship half yearly report – India Real Estate. It presents a comprehensive analysis of the residential and office market of Chennai for the period July – December 2016 (H2 2016).

Political uncertainty and extreme weather coupled with demonetisation see YOY drop in launches and sales by 29% and 9% respectively

Key Residential Takeaways:

-Supply drops by 18% to 4800 units during 2016
-Demonetisation a major reason as demand plummets 31% YOY in Q4 2016
-The South Chennai micro-market accounted for over half the units launched during H2 2016 with healthy development interest in locations such as Kelambakkam, Ottiambakkam, Mahindra World City and Seruseri
-The premium segment QTS now exceeds that of the Chennai residential market and this segment now carries nearly four years of unsold inventory
-Chennai residential market currently carries close to two years of unsold inventory

Key Office takeaways:

-Transactions match the record levels achieved in 2015 close the year at 5.09 mn sq ft.
-Supply at historical low with just 0.5 mn sq ft of office space attaining completion in 2016
-City sees just 2.7 mn sq ft of supply coming online since H1 2015, compared to the 10.1 mn sq ft of office space taken up causing vacancy levels to plummet to 12.5% H2 2016 from 22.5% in H1 2015
-The total office space transaction volume in H2 2016 was 3.1 mn sq ft, while only 0.2 mn sq ft of new office space came online
-Healthy rental growth across micro markets; SBD locations such as Perungudi, Guindy and Taramani continue to witness above average rental growth, particularly as vacancy levels drop to as low as 4% in the SBD and 12% on the SBD OMR
-IT/ITeS sector followed by manufacturing are the largest consumers in Chennai office space

Speaking about the findings, Kanchana Krishnan, Director – Chennai, Knight Frank India said, “The Chennai residential market has been reeling from a series of events ranging from the political uncertainly earlier this year due to elections, recent demonetisation drive, and extreme weather conditions due to cyclone Vardah to name a few that haven’t allowed market volumes to improve. The announcement of the demonetisation drive by the Central Government on 8th November proved particularly damaging to home buyer sentiments as demand plummeted 31% YOY in Q4 2016 to its lowest quarterly level since 2010. The YOY decline in demand during H2 2016 would not have been as pronounced, had this event not taken place.

The Chennai office space market moved from strength to strength as demand rose for the fourth consecutive year despite the acute space crunch afflicting the market. H2 2016 also experienced the highest transaction levels of any half-yearly period in the history of the city’s office space market on the back of big-ticket transactions. The Chennai office market has traditionally been anchored by the IT/ITeS sector which accounted for 1.3 mn sq ft of office space transactions in H2 2016; however, the last 18 months have seen the manufacturing sector also gaining in market share.”

Source: Knight Frank India

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