Rising like a phoenix to chart a new growth trajectory
Chennai’s is amongst those Indian metros which has more than one economic growth driver. Interestingly Chennai’s economy has a broad industrial base with the port along with IT/ITES and BFSI sectors contributing to its growth. Manufacturing sector in Chennai mostly includes the automobile industry, computer, technology and hardware manufacturing. It is known as the Detroit of Asia as it accounts for over 60% of the country’s automobile exports.
In addition to this Chennai’s economic development has been closely tied to its port and transport infrastructure. Showing their faith in India’s economic growth after a long time after the global financial crisis the corporate occupiers also have been in an expansion mode Chennai. Companies especially in the sectors of e-commerce, telecom and health care have expanded strongly and drove the demand for office space.
Lately we have seen a shift in global and Indian economy towards technology driven enterprises out of which several cities which are a hot bed to such activities emerged as big commercial centres. Chennai continues to be a preferred growth market for BFSI. Scope Intl, Citibank, BNP Paribas, BNYM & Yes Bank transacted over 1.2 million sq ft in 2015.
Although the contribution of space take-up by start-up firms has not been very significant they were seen to pick up pace and leased over 0.1 mn sq ft of space in 2015. Private Equity investments have also seen a tremendous growth in the country. Income yielding projects were a major attraction for Private Equity Investments and Chennai stood third in the country by attracting 14% of the share of these investments.
Market Highlights
* Housing sales remained stable in 2015 and was around 20, 500 units which were close to sales reported in 2014.
* Chennai witnessed a 62% drop in launch of units in 2015 as compared with 2014. This indicates that developers have been cautious to launch projects and have check on the piling inventory.
* Absorption rate increased to 31.3% in 2015 from about 26.6% in 2014. Even though there was a decrease in launches this year the sales rate showed a rise. This resulted in the much needed sales of the piling unsold inventory and helped in the correction of the market. Chennai stands last amongst the top four metros in India in terms of to be sold inventory.
* Rents stagnate across all sub markets. Rental values and Capital values remained stable across all sub-markets over the past year.
* Most of the sales were registered in projects in Southern Suburbs followed by Western Suburbs and Northern suburbs. Increasing activity in office space in these location are attracting buyers towards these sub-markets.
Outlook
As the state government went all out to bring investments by conducting a Investors meet, heightened economic activity can be expected to further support the residential market. Developer’s initiatives like offering attractive deal terms and schemes coupled with the lowering of interest rates by RBI have given the fence sitters a much needed inspiration. The improvement in the overall business scenario will prompt the developers to build fresh supply in order to meet with the growing demand.
Key demand drivers
* Senior Living: Gone are the days where only youngsters and middle aged people are the major investors. Lately, seniors have marked their presence in the market owing to the fact they are independent and are better equipped to take decisions post retirement. This offers a tremendous growth opportunity to the service providers.
* Luxury consumerism: The current increasing prosperity in India’s economy has resulted in the increased number of rich people. Thus, luxury consumerism is seeing new heights. More developers are now looking to tie up with the international brands and are working towards launching more units.
* Foreign Direct Investment: Foreign Investors interest in real estate sector is on a rise after almost five years. Recent easing of FDI rules is expected to bring in more capital into the property sector.
* Make In India: Once the GST is rolled out, warehousing sector will take a huge leap forward reaching an inflecting point. Developers / Investors acquire corporate owned land parcels across the city with deals in excess of INR 1,100 crores. 1.5 –1.8 mn sq. ft. of Grade A Industrial / warehousing space leased in Chennai
The government at the Centre has been actively working towards formulating positive measures to boost up the economy and promote business expansion in all the sectors. The effort is clearly reflected by the increased demand in the year of 2015. Occupiers’ expansion and growth plans in the city have continued despite the recent floods. However, they are now engaging in the study of flood plains, proximity of water bodies to their facilities and indulging in rigorous technical due diligence to assess possible risks and mitigation measures.
Likewise, developers are also taking precautionary measures such as revaluating the placement of electro-mechanical equipment in the basement, gradient of land and building to alleviate the possibility of damage from future floods. When the tide turns the other way local developers and domestic investors with their familiarity in the micro markets are the ones to rely on.
