A tight supply situation for quality commercial space, particularly non-IT office space and retail space is buoying up lease rentals in Chennai, say real estate agents.

The lease rates are on a high in the backdrop of a healthy demand from the financial sector, retail space covering garments, hospitality, department stores and other outlets.

Those looking for space include domestic and international players, they say. But quality space supply is at a low as the focus on residential space development over the recent years has hit availability.

According to Mr G. Vishwanathan of VA Shelters, quality commercial space in this segment commands a minimum of Rs 100 a sq. ft a month in most major markets in Central and South Chennai, whether it is Nungambakkam, Anna Salai, Adyar or Anna Nagar.

The demand is being driven by a range of players requiring small floor plates and large spaces, such as ice cream parlours, banks, furniture shops or clothes outlets. Local players and large international brands are on the look out for space.

Cost of quality spaces

Quality space can range between Rs 125 to over Rs 180 a sq. ft a month in a modern mall or a high-end location such as the Khader Nawaz Khan Road, say agents.

This location — which has an established reputation as a destination for premium brands — has just seen new entrants including a mall for niche super premium brands and the cult motorcycle brand Harley Davidson which has set up shop here.

According to Mr Vishwanathan, ‘significant international brands' that wish to enter the market and existing brands that are expanding are looking for space.

For instance, Mahindra Retail's Mom & Me, a specialty chain of stores, is looking at a half dozen locations in Chennai. It is now in three major localities including the Express Avenue Mall, Anna Nagar and on the Old Mahabalipuram Road to the South of Chennai, a major developing residential market.

Typically, brands that look at one or two locations target Nungambakkam or Anna Salai, for a few more locations they add Adyar, Raja Annamalai Puram and Anna Nagar and if they have a larger chain in mind then they spread to Velachery, Chromepet in the outskirts of the city.

Mr Abdur Ravoof, Partner, Property Care, says the issue is the mismatch between expectation of space owners and potential tenants and the low supply.

Retail outlets ideally want a ground floor location, wide road front and of course a great location.

There simply are not enough such quality space in the city. Even those in old buildings are not willing to scale down their expectations because of the space shortage. Retail space anywhere in the city, including the outskirts like Velachery commands over Rs 100 a sq. ft, he says.

In office space, a similar situation prevails with new quality space commanding and getting a price well above prevailing market rates. Clients are willing to pay for quality services, adequate parking space and power back up.

In demand

For instance, the agents say, the Prestige Group's office project on Greams Road, a nearly two lakh square feet location, has seen rapid off take of large floor space — each floor plate of about 10,000 sq. ft commanding over Rs 70-75 a sq. ft a month.

A leading healthcare player has taken a couple of floors and more than 65 per cent of the space has been booked. But a few hundred metres from this location, space but without the premium service and infrastruahacture, is available for half that price.

Mr Vishwanathan says the demand for retail space will sustain through the year as it is being driven by long term players.

A report by Cushman & Wakefield says, Chennai saw a total absorption of 5.1 million sq. ft, with Chennai office market seeing a 33 per cent increase in absorption in 2011 over the previous year. However, the supply was 1.36 million sq. ft, which is considerably lower as compared to with 2010. IT/ITeS continues to be the primary demand driver.

Despite a healthy demand scenario, the rental values across all markets remained stable during the second half of the year.

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