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Chennai : sector stable, but retail subdued - Q1 2014

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The domestic economic environment remained challenging in Q1, with the latest GDP data indicating modest growth rate of 4.7% in Q4. Inflationary pressure, though stabilised, still remained high as do interest rates. However, both fiscal deficit and current account deficit remained within the target range. The Reserve Bank of India (RBI) granted preliminary banking licences to two entities after a year-long application process and indicated that issuance of new banking licences will now be a continuous process.

The office real estate market in the city surprised on the upside in Q1, with total space take-up of 0.9 million sq ft. This was led by two large deals of around 0.1 million sq ft each in an SEZ at the beginning of OMR (Old Mahabalipuram Road). The clear preference shown by occupiers for space in pre-toll precincts of OMR has resulted in very low vacancy in this sub-market. This has led to a sharp 15% growth in rents in this area over the past year.

Meanwhile, the consistent demand for space and prevailing low vacancy in the SBD precincts of Guindy and adjacent areas has prompted developers to focus on mid-sized projects in this sub-market. Currently, there is only a limited supply pipeline in the city beyond 2014, which is likely to push up rents in key demand centres in the near term.

The city’s retail real estate market has shown mixed signals in Q1. On the one hand there has been a number of store closures, relocations and space rationalisations on high-streets, while on the other there has been robust demand for space in a few successful malls. During the quarter, no new malls opened and no new supply is expected for the rest of 2014.

Although some of the previously stalled mall projects have been revived, only modest new supply is expected in 2015. The limited supply of new mall space is expected to exert upward pressure on prime rents in a few key malls in the city in the medium term.

Source : DTZ (Groupe UGL)