Demand for office space dips

The demand for office space dipped in Chennai during the second quarter of 2013 in the backdrop of the economic situation and cautious market sentiment, according to Colliers International’s quarterly update on office market.

Rents stagnated as supply is expected to exceed demand with more projects in the pipeline. “Looking ahead, the rents are expected to remain stable due to the large supply in the pipeline and cautious economic sentiments for such locations,” report said.

The demand was less than one-tenth of the space on offer with leasing dependent on relocations to smaller offices rather than expansions.

Lots of space

More than 13.5 million sq. ft of Grade A commercial office space was available for lease during the April-June quarter with the majority of the supply concentrated along the IT corridor on Old Mahabalipuram Road.

No new supply hit the market and new launches did not happen. Absorption trends were along the lines noticed in the first quarter with a number of mid-sized transactions (10,000 to 45,000 sq. ft) happening during the quarter.

The localities that were in demand in terms of commercial leasing were OMR, RK Salai and Dr MGR Road. The total absorption was around 1.53 million sq. ft.

During the surveyed quarter, major occupiers were looking for relocations rather than expansion. Major occupiers like IBM Daksh, AT&T and Bosch have relocated to smaller spaces, according to a property consultant.

Rents stable

Rents were stable with the central business districts fetching Rs 65-85 per square foot per month; Guindy Rs 50-60; Ambattur Rs 25-30; IT corridor Rs 25-40; and GST Road Rs 35-40.

During the quarter rental values and capital values for Grade A commercial office space remained stable in most markets, except Ambattur where capital values decline by about 6 per cent quarter on quarter reflecting the demand-supply scene which favoured the tenant.

No major changes are anticipated in the trends in the immediate quarters in terms of rents and capital values.

Same everywhere

The trend of supply of office space far exceeding demand appears to be the standard feature across all the major cities, according to the report.

Companies were cautious on expanding space and tight-fisted on costs. In the six major cities studied — Mumbai, NCR, Bangalore, Chennai, Kolkata and Pune — the overall leasing was down 15 per cent over the previous quarter at about 6.93 million sq. ft.

Colliers expects that the second half of 2013 will be no different as compared with the first half till there are clear signs of economic recovery on the international scene. Rents are bound to stagnate, possibly drop in markets where the supply is huge — such as Chennai, Gurgaon and Noida.

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