CHENNAI: The demand for office space in Chennai is expected to dip, with an expected slowdown in North American and European countries affecting the information technology sector, according to a report by Real Estate Intelligence Service of Jones Lang LaSalle India.“With Chennai being a major IT and Industrial hub, nearly 60 per cent to 70 per cent of the demand for office space in Chennai is contributed by the IT and ITES and manufacturing sectors. But this will be hit during the second half of this year and also next year, following an expected slowdown in the North American and European countries, whose economies are key to the IT sector’s growth,” the report ‘Chennai Real Estate a Closer Look’ said.However, on a long term, Chennai office market is expected to absorb nearly four million square feet of office space annually till 2015, the study stated.The report also stated that 2011 had ushered in renewed interest in non-IT office space in Chennai - especially from firms wishing to relocate their offices to better grade buildings. The expected fresh supply of non-IT office space should witness active absorption at the right rentals.There will be greater demand for investment grade office spaces within the city, since there is a severe dearth of high quality office buildings in the central areas, the report said.The Chennai office market has witnessed remarkable growth which is due to the offices built for the IT industry (as IT Parks or IT Special Economic Zones), which constitute 86 per cent of the operational office stock in Chennai.“With 17 million sq ft of supply expected during the third quarter of 2011 to the fourth quarter of 2015, Chennai will continue to add more office space, and attain the current size of office stock of Mumbai during 2015,” the report said.Adequate volumes of office supply will keep hitting the markets every quarter, keeping the segment interesting for occupiers as well as investors, it added.Chennai’s high streets continue to remain as a favourite location for retailers as conversion rates in high streets are higher compared with those in malls. The neighbourhood of premium residential catchments, ample space for a hassle-free car park and proximity to the city centre are the key drivers of demand for high-end high streets. The high streets of Khadar Nawaz Khan Road (KNK Road) and Wallace Garden Road have emerged as important retail destinations for global luxury, fashion and premium brands, the report added.The suburban area of Chennai is also witnessing significant residential activity, with nearly 71,000 residential units under construction and likely to enter the market in the next three to four years. “This indicates the potential of Chennai’s suburbs to emerge as an attractive retail destination. Bigger residential catchments in the suburban areas combined with more reasonable rentals compared to those in the prime city are expected to act as key driving forces for retailers to increase their presence in the suburban precincts of Chennai in the long term,” the report added.The additional mall supply is likely to be launched with high occupancy levels resulting in overall stability in the mall vacancy rate in the city. With more mall completions anticipated over the next three years, the city’s mall footprint is expected to rise annually from 2011 onwards. This trend is supported by the entry of malls by a few renowned developers such as Prestige Group, Phoenix Market City, PS Srijan and Marg Constructions, the report said.
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