Chennai real estate market outlook 2011

RESIDENTIAL REAL ESTATE:

The outlook for Chennai’s residential property market remains positive in 2011. This is a stable market, and the prices have risen rationally in tandem with normal market trends. With the IT sector on the upswing and job security once again strong, Chennai’s residential real estate market will see accelerated demand in 2011.

So far this year, property pricing has improved by 20-25%% within city, by 10-15 % in OMR and by 1-5% in select pockets of GST and Sriperumbudur. Overall, 2011 is going to be year of optimism for residential real estate in Chennai.

We have witnessed preferred flat sizes reducing from 1700-2000 square feet to 800-1300 square feet over the last two years. While pricing stabilized in sync with the market, pricing gradation in projects themselves was more gradual, with 3-4% at the launch to 90% at the completion stage. This unlike the trends seen earlier, where price movement was more rapid and illogical. Year 2009 was the year of affordable housing in Chennai, with a number of projects being launched in Rs. 20-30 lakh band.

One major issue for residential real estate activity in Chennai has been the lack of social infrastructure in peripheral business districts (PBDs) even as housing in the central business districts remained unaffordable. The lack of social infrastructure in the PBDs is hurting both absorption and positive price movements.

COMMERCIAL REAL ESTATE:

2011 has already begun ushering in renewed interest in commercial office space in Chennai – especially from firms wishing to relocate their offices to better Grade A buildings. The expected fresh supply of commercial office space should bring about active absorption at the right rentals.

In terms of IT office space, OMR remains a favoured destination, with most of the absorption expected before the toll plaza because of easier and more cost-effective commuting. There will be greater demand for Grade A office spaces within the city, since there is a severe dearth of high quality office buildings in the central areas.

Attractive rentals will drive demand for office real estate in projects after the toll plaza. Vacancy levels will plateau our, and rentals will remain favourable to tenants through the third and fourth quarters of 2011.

Meanwhile, occupiers will continue their beeline to SEZs to capitalize on their benefits before the approaching STPI sunset clause. Projects closer to the key areas will be in demand, and great emphasis will be laid on operational facilities, rigorous adherence to construction timelines and the availability of incubation space.

Over the last couple of years, we have been observing a trend of relocation to peripheral business districts by corporate occupiers who want to gain rental advantages and avail of better facilities. There is now greater availability of smaller, older Grade B-C office spaces within the city, and there is an increasing drive towards rehabilitating older buildings.

Certain measures are required to augment commercial real estate activity in Chennai:

A more transparent tracking system of the planned infrastructure
A greater focus on upgrading the public transport systems to offset road traffic
Assigning of specific zones for commercial, retail and residential use, and
Ready availability of information on residential density in catchments to the public

RETAIL REAL ESTATE:

Chennai’s organized retail real estate market is definitely improving, with inquiries from major retailers on the ascent. Many new retailers are also planning to enter the Chennai market. The 2011 outlook remains bullish on retail real estate growth; however, supply remains a challenge.

The last couple of years have seen new retailers entering the Chennai market at reasonable real estate occupancy costs. The coming two years will see a spurt in the growth of standalone shopping centers and built-to-suit proposals.

Currently operational malls in Chennai: