BENGALURU: The Chennai property market may see an oversupply situation over the next two years, primarily due to several large projects nearing completion around the same time, which may put downward pressure on rentals.
“There is a slowdown in IT ITES space takeup already . The average annual absorption is also 2.5-3 million sq ft only,“ said VS Sridhar, managing director (Chennai), Cushman and Wakefield.
Several large developers from across the country like Brigade Group, RMZ, DLF and Embassy Group have proposed large-scale greenfield grade A commercial developments of over one million sq ft each across the micro-markets of Chennai. A majority of these developments are in various stages of construction and are expected to be completed between 2018 and 2019.Most of these developments fall under special economic zone (SEZ).
“There will be some equilibrium between demand and supply, but good projects may not face issue of leasing. There will be marginal risk as large projects take a year's time to be completely occupied from the date of receiving the occu pancy certificate,“ Vishal Mirchandani, CEO (retail and commercial), Brigade Group, said. Brigade is setting up a 1.8 million sq ft commercial complex World Trade Centre, which is set to be completed by 2019-end.
The commercial market in Chennai has seen absorption drop by 24% quarter-on-quarter in the third quarter of 2017 due to lower interest from corporates.
“The overall absorption across India witnessed an annual dip, primarily due to a marginal dip in absorption among key metros across India.Similar to other metros, Chennai has also seen a marginal dip in absorption on an annual basis,“ said Ram Chandnani, MD (advisory and transaction services India), CBRE.
Builders are also rushing to complete the project to avail tax benefit under
SEZ schemes.
“The sunset clause expects projects to be completed and become operational units by 2021to avail the 10-year tax benefit,“ said C Velan, CEO, TRIL Infopark, which is scouting for land parcels in and around Chennai to expand its portfolio. It recently leased 4.5 million sq ft office space to Amazon in Chennai.
SEZs are set to lose the direct tax benefits extended to them under the SEZ Act in four years. The Union Budget has proposed to abolish all direct benefits for SEZs that are operationalised after March 31, 2020.
According to CBRE, the top three micro-markets of Chennai -OMR Zone 1, Mount Poonamallee Road and Off CBD like Guindy -are currently witnessing single digit vacancy levels. However, at the same time, rental values in these micromarkets has witnessed a growth of between 12 and 15% year-on-year.
“Adequate supply may benefit companies in terms of optimal rentals,“ said Velan.
Source: economictimes.indiatimes.com