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Saturday, May 23, 2009
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Poor absorption of IT space in Chennai

A.Srivathsan

Commercial rents down by 10 to 15 per cent
Government efforts to revive property market positive

Chennai: Oversupply and poor absorption of commercial space, particularly IT office space, continues in Chennai.

The first quarter report for 2009 released by the Real Estate Intelligence Service (REIS) of the Jones Lang Lasalle Meghraj (JLLM), real estate consultant, states that the stock of commercial space, including IT space in Chennai, is about 30 million square feet and the vacancy rate is between 15 to 20 per cent.

The stock of the commercial space is expected to increase and get close to 40 million square feet by the end of 2009. Simultaneously, the vacancy rate is expected to rise to 20 to 25 per cent.

According to the JLLM study, commercial rents in Chennai were down by 10 to 15 per cent since the last quarter of 2008. Weakening IT demand and disproportionate supply has created this oversupply situation.

The JLLM explained that the Chennai saw a supply of 8.16 million square feet of commercial space, including 7.91 million square feet of IT space, in 2008. The absorption of commercial space was at 5.86 million square feet leaving about 2.30 million square feet vacant.

Drop in rentals

The drop in rentals was observed to be more prevalent along Old Mahabalipuram Road than along Grand Southern Trunk (GST) Road.

The REIS thinks this is because “GST Road consists of only IT SEZ space unlike OMR, which has a huge supply of IT buildings in the pipeline.”

This has also led to an increase in rent-free periods in IT buildings in Chennai.

However, neither the low absorption nor the falling rentals has dampened the supply of IT space in Chennai.

The RIES estimates that about 92 per cent of the commercial space supply coming in the next three years in Chennai is for IT occupiers. The JLLM study acknowledges that government efforts to revive the property market across India through fiscal measures have been positive, but the real impact is yet to be felt.

National trend

Chennai, the JLLM feels, reflects the national trend.

The vacancy for commercial space in India rose from 9.1 per cent to 12.5 per cent in the first three months of 2009 and in all the cities the vacancy rose to double digits.

Another report by the JLLM on the rental dynamics states that the downturn phase in the office sector is expected to last another two to two and half years.

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