The share of global firms in the overall office leasing has consistently remained above the 50 per cent mark in the last 6 years in Chennai and the trend is expected to persist in the upcoming years, said a report by CBRE South Asia Pvt Ltd. The real estate consulting firm announced the findings of its report ‘Diversification series: Rise of Chennai’, according to which, global companies are increasingly venturing into Chennai for their expansionary endeavours, with existing firms resorting to flight-to-quality leasing.
The popularity of the city as a preferred destination is also due to global firms setting up their Global Capability Centre’s (GCCs). Due to a vast talent pool, thriving manufacturing capabilities and availability of quality office space at competitive rentals, Chennai has gained prominence amongst global companies to establish their global capability centres. A high number of colleges and universities offering science, technology, engineering, and mathematics (STEM) courses have been a key enabler for GCCs in the city. Global firms are predominantly occupying spaces within developments situated in OMR Zone 1 and Zone 2, the report stated.
Where is the demand coming from?
From past three years, American semiconductor manufacturing firms, EMEA-based oil & gas companies and machinery manufacturers from both the regions led the Engineering & Manufacturing (E&M) leasing activity accounting for 2/3 of the total office leasing, while BFSI leasing is mostly dominated by American financial services and investment firms followed by domestic banks. The implementation of incentives, including capital subsidies, training support, reduced land costs, and enhanced quality certifications, as part of Tamil Nadu’s semiconductor and advanced electronics policy, 2024, is anticipated to amplify leasing activity in the Engineering & Manufacturing sector. During 2023, the E&M and BFSI companies witnessed about ten very large-sized office deals (>200,000 sqft), a significant increase compared to one or two such deals typically closed in previous years.
In 2023, 46 per cent absorption in overall office space was led by American companies followed by 34 per cent domestic firms. As per the report, the E&M (engineering & manufacturing) sector led the absorption with 28 per cent followed by BFSI with 22 per cent share in 2023.
The industrial and manufacturing landscape in the city has supported the leasing of office spaces by firms involved in semiconductor manufacturing, oil and gas exploration that are seeking to digitize their services. In addition to the E&M sector, the availability of fresh and experienced engineers and financial professionals in the city has fueled the expansion of global banks and financial institutions. From the last three years, financial services and investment firms took the lead within BFSI leasing activity contributing to nearly 3/4th share in overall office leasing, followed by banks and insurance firms.
Chennai office overview
Over the last few years, Chennai has garnered significance as an office market to emerge as third- highest in terms of office absorption in 2023. The report highlights the city recorded its highest-ever leasing and decadal high supply with a total absorption of 10.0 mn sqft and supply stood at 6.4 mn sqft in 2023. Chennai represents 10 per cent of India’s overall commercial office stock. The office stock in 2023 was at 87 mn sqft in 2023.
The city’s OMR Zone 1 continues to be the most active micro-market, followed by OMR Zone 2. The average size of the newly completed developments more than tripled to reach 490,000 sqft in 2023, compared to 146,000 sqft in 2018. Furthermore, the average deal size also experienced a substantial increase, rising from 21,000 sqft in 2018 to 35,000 sqft in 2023.
Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, said, “Chennai’s real estate market has experienced exponential growth over the past decade. Seeking to attract investment and propel job creation, the government has actively implemented sector-specific policies, significantly enhancing Chennai’s real estate landscape. Tailored initiatives for industries like engineering & manufacturing, fintech, IT, aerospace, and electronics have fueled a substantial upsurge in office space absorption during 2023. This surge positions Chennai as a key contributor to India’s overall office market, demonstrating the success of these government interventions across diverse sectors.”
Ram Chandnani, Managing Director, Advisory & Transaction Services, CBRE India, said, “Chennai’s charm as an investment destination, particularly for global and domestic manufacturing firms, is expected to drive innovation and technological advancements. With companies increasingly adopting innovative technologies such as Artificial Intelligence, SaaS, Big Data, and IoT, Chennai is positioned at the forefront of evolving trends. The growth of BFSI and E&M GCCs in Chennai is likely to further reshape the city’s office real estate momentum”.