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Interviews - Trends in the real estate market in Chennai

N.Hariharan, office director-Chennai, Cushman & Wakefield

Chennai,Chennai,Tamil Nadu.

How has the real estate market in Chennai changed in the last two years?

In the last two years, Chennai has witnessed an upswing in the real estate sector boosted by the proposed infrastructure projects and improvement in existing infrastructure facilities. Chennai’s office realty witnessed a rise in preference for Grade A space by the occupiers over the last two years and as a result, developers have come up with only Grade A supply in 2012.

The commercial office space has witnessed a drop in Grade A vacancy levels, from about 23% in Q4 2010 to about 15% in Q4 2012. The suburban micro markets of Guindy and Perungudi-Taramani have picked up in terms of supply and absorption owing to expansion and entry of IT/ITES players and other corporate houses in these locations.

As the city has attracted job-seekers from across the country, it is witnessing a spurt in residential demand, mostly in the suburban locations such as OMR and GST Road. Consequently, the capital values have also witnessed an average rise of around 15-25% across micro markets in the last 12 year.

Though 4 malls having a total area of about 640,000 sqft were added in Chennai over the last two years, retailers preferred main streets over malls.

The city has witnessed leading premium and luxury international brands like Louis Vuitton and Armani, amongst others establish their presence.

Why did this change come about?

The major factor that has brought a change in real estate market of the city is large number of multinational companies, including some of fortune 500 companies, setting up their base in the city. Amongst sectors, the major demand drivers for commercial office spaces are IT/ITeS, automobile and manufacturing sector.

This has lead to an increase in demand for quality commercial office space in the city. Locations like OMR, Rajiv Gandhi Salai, etc have witnessed an appreciation in capital values for residential units due to demand driven by a mix of both investors and end-users.

The increased employment opportunities due to commercial and industrial activities have resulted in an increase in per capita income, and boosted the cosmopolitan nature of the city, which has further helped the retail sector to grow in the city.

There is no doubt that the real estate market in Chennai is currently on a boom. Will this last through 2013?

The real estate market boom in Chennai is expected to continue in 2013. The overall improving economic scenario and market sentiments, anticipation of reduction in lending rates by RBI, substantial office as well as mall supply and the ongoing metro rail project are expected to positively impact the Chennai Real Estate Market in 2013.

Chennai will continue to attract investments from several industries due to its strategic location, availability of skilled manpower, better infrastructure and cosmopolitan outlook.

Which sectors/areas will be the new markets in this year?

The suburban locations of Guindy, Rajiv Gandhi Salai, Velachery, Taramani are expected to witness most of the supply of residential units due to scarcity of land in the central prime locations of the city.

In the commercial office market, suburban micro markets of Guindy and Perungudi Taramani are expected to perform well due to their location advantages and healthy demand scenario. Velachery can be seen as a new emerging market this year with upcoming malls and improvement in social infrastructure.

With respect to real estate in the rest of the country, what are your views on the market in Chennai? What will real estate in Chennai mirror or be different from trends in the rest of the country this year?

The real estate prices in Chennai are not as high as those in major cities such as Mumbai, NCR and Bengaluru, but are higher than those in other major cities such as Pune, Hyderabad, Kolkata and Ahmedabad.

The residential market of Chennai like most of the cities is driven majorly by end-users belonging to the mid-income category. In the commercial office market, most cities witnessed a low absorption in 2012 primarily due to the cautious approach of companies towards expansion and conservative market sentiments.

However in 2013, absorption is expected to increase in most of the cities including Chennai. Chennai is expected to witness the second highest mall supply in 2013, just after NCR.

In the residential markets, Chennai is expected to witness stable prices in 2013.

Overall the Real Estate market in Chennai will mirror most of the trends in the rest of the country this year.

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