Automobile investments to generate office space demand.

The global investment firm Xander Group’s key deal worth US$350 million to acquire the Special Economic Zone (SEZ) owned by Shriram Properties on Chennai’s GST Road in Q2 2017 will boosted foreign investment in the real estate sector.

Such augmented FDI participation combined with expected Real Estate Investment Trusts (REITs) in the near future, the sector will see enhanced corporate governance and embrace professional practices, said Colliers International India.

“With significant investment announcements by automobile giants like Hyundai, CEAT and Groupe PSA accounting for about US$2.016 billion, the automobile sector is expected to represent an increasing share of office demand in forthcoming years”, said Surabhi Arora, Senior Associate Director, Research, Colliers International India.

Colliers Research further believes that although the OMR-Post Toll corridor is gaining momentum with IT-ITeS expansions and increasing supply, the corridor will be overburdened unless the existing infrastructure facilities are improved.

Meanwhle, Chennai recorded about 1.1 million sq ft (102,000 sq m) of gross absorption in Q2 2017 and as expected, the market witnessed a shift in occupier focus towards the OMR-Post Toll belt with large deals sealed in the Navalur, Sholinganallur and Pallavaram-Thoraipakkam Road regions.

This has led to an increase in the share of micro-markets in gross leasing to 33%. With sturdy expansion and relocations, OMR Pre-Toll accounted for 26% of the market, while the inner-city locations such as Central Business District (CBD) and Off-CBD micromarkets accounted for 12% and 16%, respectively.

Moreover, with sizeable transactions in Ambattur, the micro-market represented 7% of gross absorption and the remaining 6% was recorded in Mount Poonamalle High (MPH) Road.

“Although commercial leasing was almost negligible in Grand Southern Trunk (GST) Road in Q2 2017, leasing volume is likely to improve in coming quarters, considering a few deals that are in final stages of closure.

SEZ spaces concentrated in OMR micro-markets accounted for 16% of gross leasing volume, indicating constant inclination of occupiers towards the available SEZ supply along the corridor. Rents are set to increase as a result of increasing demand coupled with limited supply across all micromarkets”, said Shaju Thomas, Director, Office Services, Colliers International India.

As per Colliers Research, as the momentum picked up pointedly in preferred micro-markets, rents are set to increase about 4-5% in the upcoming quarters and overall city rents will increase up to 12% in next 3 years. In terms of supply, H1 2017 witnessed a supply of about 1.1 million sq ft (102,000 sq m) and an addition of 3 million sq ft (279,000 sq m) is expected in H2 2017 with notable supply schedules at SEZs in OMR-Post Toll, MPH Road and GST micromarkets. Considering the upcoming and available supply, the present vacancy rates will hover around 11% in 2017.

Chennai has been persistent in enticing premium developers recently. For instance, the Brigade group has launched its remarkable project World Trade Centre (WTC) at Perungudi in OMR Pre-Toll micro-market.

The project will add about 2 million sq ft (186,000 sq m) of SEZ supply to city inventory by 2020.