Chennai is emerging as a big office real estate market, but challenges remain

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A city once considered an underdog now stands tall. In India’s highly competitive office real estate market, which has traditionally been dominated by cities like Mumbai, Delhi-NCR, Bengaluru and Hyderabad, a new protagonist is emerging—Chennai. “It is the only city that has seen growth in the office [real estate] markets this year so far,” says Chandrakant Kankaria, Joint MD of Olympia Group, which is coming up with a 1.2 million sq. ft (msf) tech park in prime Chennai office locality Guindy.

The numbers bear out Chennai’s rise. With an uptake of 6.5 msf of office space in the first nine months of 2023 between January and September, Chennai has not just surpassed its entire 2022 consumption but stands shoulder-to-shoulder with major markets like Mumbai (5.6 msf), Delhi-NCR (6.5 msf), Bengaluru (10.6 msf) and Hyderabad (6.6 msf), per data from commercial real estate services and investment firm CBRE. In fact, the city accounted for 15 per cent of India’s total office space absorption during this period. “Despite global headwinds, Chennai’s office market has shown resilience, which is evident through the 2 msf office space it absorbed in July-September 2023, a 58 per cent year-on-year increase,” says Anshuman Magazine, Chairman & CEO-India, South-East Asia, Middle East & Africa of CBRE.

Traditionally overlooked in the office real estate domain and often regarded as a secondary option, the southern city is experiencing what Shrikant Joshi, CEO and MD of L&T Realty, says is an escalating demand for modern office spaces. The company is developing a 10-tower L&T Innovation Campus in Manapakkam on Mount-Poonamallee Road, spanning 5.5 msf. “Clients increasingly demand spaces that seamlessly integrate advanced digital connectivity, top-tier office certifications and sustainable features. This involves creating office spaces that adhere to platinum-rated green building standards and have multi-cuisine F&B and WELL certifications, ensuring not only quality but also occupant health,” he says. WELL certification is a global rating system for buildings that promotes the health and well-being of occupants.

Major real estate developers—both regional and pan-Indian—such as L&T Realty, DLF, RMZ and Olympia Group, are developing expansive office spaces in the city, while leading MNCs in the IT, BFSI (banking, financial services and insurance) sectors, global capability centres (GCC), and even legacy Chennai firms are securing substantial office spaces. Several factors, such as a thriving economy, a large pool of skilled talent, robust infrastructure, and far lower rental costs compared to its competitors, are adding to the city’s allure.

While the IT industry is typically the largest consumer of managed office spaces, Chennai is a much more diversified market, appealing to a wide range of businesses. “Demand growth is coming not just from the IT sector but also from banking, logistics, manufacturing, engineering, SaaS and GCC firms,” says Rishi Das, Co-founder and CEO of IndiQube. The Bengaluru-based flexi working space provider, which has been ramping up capacity in the city, plans to add 20,000 seats over the next two years.

On the other hand, the market in Bengaluru is overwhelmingly dominated by start-ups and IT firms. Further away, Hyderabad is also an MNC- and pharma-driven market. Experts say these firms tend to grow in short and fast cycles, which means these markets heat up and cool down quickly. Expensive financial capital Mumbai is more suited for head offices and smaller centres, while companies scale up elsewhere. Pune is again skewed towards MNCs and offshore development centres, while Gurugram is the only portion of Delhi-NCR witnessing growth in office space. Das says Chennai’s diversity ensures that the market does not crash even when things are not going great. “It’s a level-headed market. That is why we have been able to scale up so well in Chennai to 20,000 seats.”

While the it trend continues in the city, albeit at a much slower pace than last year, Chennai is also attracting attention from global banks. The UK-based Standard Chartered Global Business Services (StanChart GBS) is opening its biggest campus globally in the city. The 740,000 sq. ft facility at the upcoming DLF Downtown in Taramani, scheduled to open in Q1CY25, will house all its 17,000 Chennai employees, who are currently spread out across four offices. Says Venkatakrishnan Subramaniam, HR Head-Chennai at Standard Chartered GBS India: “Whether it is cash, trade, liability, asset, services, transactions, compliance, risk, technology, finance or HR, you name it and there’s a huge talent set available here,” he says, adding that the average size of their team units is 500-plus, and 130-140 senior-most leaders in the organisation are in Chennai. “I get a good confluence of people from across the country. That is why we have been able to scale up from around 370 employees at the start 20 years ago to 17,000 now.”

L&T Realty’s Joshi attributes the city’s educational prowess, skilled workforce and superior living standards as the reason MNCs are attracted to the city. A strong campus culture over the past two decades has ensured a regular supply of junior- and middle-management talent pools. In addition, Chennai also offers a more stable workforce where employee tenures are typically longer and attrition is lower. Subramaniam says the average tenure of their employees across experience bands is 5-6 years, which means they experience the entire product cycle and make room for experimentation. “Chennai is minimalistic and functional, unlike Bengaluru which benchmarks everything with Silicon Valley. They don’t expect too many add-ons, such as goodies, freebies and the whole shebang of infrastructure like big breakout areas, which employees in Bengaluru do,” says Das, adding that an HR professional’s job is simpler in Chennai.

Even a decade ago, it was common for professionals in Chennai to migrate to other cities or countries for career progression, but that’s not so much the case anymore. Now, the influx of many multinationals, a thriving start-up culture, and global players establishing their GCCs have ensured a higher quality of opportunities. For instance, GCCs of companies like Shell, Qualcomm, Hitachi Energy India, etc., have made significant commitments to Chennai’s office real estate market, with Dow Chemicals alone leasing a substantial 250,000 sq. ft space in Q3CY23.

Subramaniam says it was a challenge to attract talent to Chennai in the early part of their India journey. “But that has completely changed in the past 4-5 years. Now getting the right kind of talent from across the banking industry is no longer a difficulty.” Plus, the overall infrastructure development in the form of transportation within the city and connectivity to other parts of the country, expanded food choices, a diminished language barrier, healthcare and education facilities, and a mix of tradition and modernity are also working in the city’s favour, say experts. “From the Central Business District, getting to IT corridor OMR (old Mahabalipuram road) or the airport doesn’t even take half the time it does in Bengaluru,” says Das.

source : businesstoday

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