Demand for office, IT spaces points to signs of revival

Chennai:Demand for office and IT space is apparently showing signs of improvement in the city, judging by the response many developers have been getting the past two months. New office space at Seshachalam building, getting ready on Mount Road with roughly 70,000 sq ft area, is receiving a good number of inquiries, going by what its promoter Subba Reddy, MD, Ceebros says.
Industry sources say the promoters are quoting Rs 60 per sq ft as rental for the building. Says Reddy, “We are just nearing completion and are hopeful of leasing it out fully.”

Chennai developers say they are getting inquiries from many firms in Hyderabad who want to move out of that city primarily owing to Telanganarelated violence. Shriram Properties CEO D Murugesan says, “We have got three prospective customers from Hyderabad. They approached us a few days ago and their requirement ranges from 30,000 sq ft to 90,000 sq ft. We expect more such demand in the coming weeks.”

Shriram, which is developing a Rs 1,400-crore IT special economic zone in Perungalathur on the GST Road, has done some decent business even as the market is struggling to get out of the slump. It has leased out 1.5 lakh sq ft the past two months.

“One single customer, Take Solutions, has taken close to one lakh sq ft. We are working on leasing out another 75,000 sq ft,” says Murugesan. Khivraj Estates MD Ajit Chordia says, “Right now, we have 33 prospective tenants with whom our people have been interacting for close to three months. Most of them are US-based companies. A lot of inquiries are pouring in nowadays. Of course, decision making is getting delayed. But till a few months ago, nobody was even approaching us. We have space in three buildings in the city and are hopeful that by the last week of January we can finish the deals.”

Chordia maintains that rentals have nosedived compared to two years ago. “One of our tenants at Olympia Tech Park in Guindy was paying us Rs 90 per sq ft. All of a sudden, he moved out as somebody offered him space at Rs 60 per sq ft. We ourselves would have reduced the rental to Rs 60 if he had told us. But before we got to know about his exit, he had signed the deal for another building.” Many opt for moving into old buildings where rentals are still lower, he adds.

However, it will take a long time for builders to start celebrating because the city and its suburbs have close to one crore sq ft of vacant IT and office space. Much of it is on the Old Mahabalipuram Road. Even if the market turns bullish, it will take two to three years for the vacant space to be fully occupied. For the same reason, rentals may not increase the next two years.

Last year, according to Ramesh Nair, MD, Jones Lang LaSalle Meghraj, was the worst for the Chennai office space market in recent years. “While 5.1 million sq ft was absorbed in 2006, 7.2 million sq ft in 2007 and 4.2 million sq ft in 2008, only 2.6 million sq ft was absorbed in 2009. But October onwards, there is a positive sentiment in the market as many companies have started hiring as well as hunting for office space.”


Ref : The Times of India -Thursday, January 14, 2010