• Breaks into top-3 cities in terms of gross office space absorption in 2022

Despite the cautious approach from large MNCs due to the economic slowdown, Chennai is projected to maintain its momentum in 2023, with an expected 6 million sq. ft. of office leasing activity. With the Metro Phase II construction progressing, the peripheral areas are likely to witness a surge in demand in the medium to long term period according to International real estate advisory firm Savills India.

Absorption Supply 
2022 2023F 2022 2023F
7.3 mn sq. ft. 6.0 mn sq. ft. 5.0mn sq. ft.   10.5 mn sq. ft.

Outlook for Chennai office market

  • Strong precommitment pipeline of office space – Chennai likely to witness office leasing activity of 6 million sq. ft. in 2023
  • While leasing activity is likely to be driven by the IT-BPM sector, flex spaces are expected to have a more significant contribution in 2023
  • Vacancy rates across micro-markets are likely to increase with the anticipation of Grade-A Office supply outpacing demand 
  • City-wide rentals are expected to be resilient and likely to stay stable in 2023
  • In 2023, around 8-10 million sq. ft. of supply is expected to be infused in the market, taking the Grade-A stock of office space beyond 90 million sq. ft
  • More than 35% of the anticipated supply is coming up in the PTR micro-market
  • Vacancy levels are expected to increase to 18% by the end of 2023

Key Highlights of 2022 for Chennai office market

    • In 2022, Chennai propelled into the top 3 list in office absorption across the country with a gross absorption of 7.3 million sq. ft
    • Pre-Toll OMR accounted for a 28% share in the 7.3 million sq. ft. city-wide gross absorption in 2022.
    • Leasing activity in 2022 was dominated by small (less than 25,000 sq. ft.) and mid-sized deals (25,000-99,999 sq. ft.), the cumulative share of such deals increased from 72% in 2021 to 79% in 2022.
  • IT-BPM occupiers continued to be the major demand drivers of commercial real estate in the city; its share increasing from 51% in 2021 to 64% in 2022. 
  • Flexible spaces came in second with a 12% market share, while BFSI occupiers came in third with a 6% contribution to the city’s overall leasing activity
  • Interestingly, Guindy has positioned itself as a preferred micro market and contributed to around one-third of the flex-seat demand of Chennai.
  • With a fresh supply of 5.0 million sq. ft. of office spaces, the annual supply infusion in 2022 was almost 6 times as compared to that in 2021
  • The micro markets of MPR and GST saw the maximum project completions, contributing to more than 70% of the overall supply of 2022.
  • Vacancy levels in 2022 marginally increased to 15.9%. While, high-demand micro markets like Guindy had 5 % vacancy levels, certain peripheral micro markets like GST Road had over 40% vacancy levels as of December 2022.
  • The average city rentals grew by around 5% in 2022. While the rental growth was high at around 10% in areas like Pre-Toll OMR and CBD, average rentals remained stable in micro markets like GST Road and Ambattur 

Anup Vasanth, MD, Chennai, Savills India said,” Despite the concerns over economic slowdown likely, we believe Chennai will witness healthy leasing activity in 2023. The supply side is also set to witness a substantial amount of infusion in the city making it an exciting market for occupiers. In addition, the city has a diverse range of industries such as IT, manufacturing, and healthcare, which are expected to drive demand for commercial spaces. The completion of major infrastructure projects such as the Metro Phase II and the expansion of the city’s airports, is also expected to boost the real estate market in Chennai.”