Knight Frank India Real Estate H2 2020 (July - December) Report - Chennai.

√ Chennai office transactions record 0.3 mn sq m (3.2 mn sq ft) in H2 2020; Second highest performing half-year period in the last decade: Knight Frank India

BFSI sector office space absorption records a 60% YoY growth in H2 2020

√ Chennai records home sales of 5,673 units in H2 2020: Knight Frank India

Sales in the INR 5 mn and above ticket size residential segment increases in H2 2020

Chennai, January 06, 2021: Knight Frank India today launched the 14th edition of its flagship half-yearly report - India Real Estate: H2 2020 - which presents a comprehensive analysis of the office and residential market performance across eight major cities for the July-December 2020 (H2 2020) period. According to the report, Chennai’s office leasing activity was recorded at 0.3 mn sq m (3.2 mn sq ft) in H2 2020 whereas new completions stood at 0.01 mn sq m (0.1 mn sq ft) during the same period. H2 2020 is also the second-highest performing half-year in the last decade in terms of the transaction volumes. In Q4 2020, office space transactions grew by a significant 227% compared to Q3 2020. With the news of the vaccine coming in, Information Technology (IT) companies have started locking in office spaces and implementing their lease plans. This increase in leasing activity coupled with the pent-up demand contributed to the Q4 2020 transaction volume surge. 

 

The share of Banking, Financial Services and Insurance (BFSI) sector in total transactions went up from 13% in H2 2019 to 22% in H2 2020, recording a sizeable 60% YoY growth in the sector’s office space absorption in H2 2020. With a share of 58% of the total transaction volume, IT sector remained the primary driver of the Chennai’s office market.

On the performance of the residential real estate segment in the city, the Knight Frank report cited that housing sales and launches were respectively recorded at 5,673 units and 3,714 units in H2 2020. With respect to ticket sizes, as conversion rate continues to be higher in the affordable housing segment, 61% of the H2 2020 launches were in the INR sub-5 mn ticket size segment.  In terms of sales, the increase in traction in the INR 5 mn and above ticket sizes is a welcome change. Driven by the COVID-induced need for larger homes, the share of INR 5 mn and above ticket sizes in total sales has gone up from 44% in H2 2019 to 57% in H2 2020.

 

OFFICE MARKET HIGHLIGHTS OF CHENNAI

 

Source: Knight Frank Research

• New completions recorded a 91% Year-on-Year (YoY) growth this year driven primarily by two large office buildings going live in Q1 2020.
• On the transactions front, leasing activity maintained its annual decadal average with 0.4 mn sq m (4.5 mn sq ft) of transacted space in 2020. It is also noteworthy that H2 2020 is the second-highest performing half-year period in this decade, after H2 2019, with 0.3 mn sq m (3.2 mn sq ft) of transactions activity recorded.
• IT office space absorption witnessed an increase not just in terms of the share, which has gone up from 53% in H2 2019 to 58% in H2 2020, but also in terms of the total area transacted which was up by 4% YoY. This is noteworthy because most companies had adopted work from home policy for a large section of their employee base after the outbreak of the pandemic.
• Within co-working players, enterprise model providers and managed office operators have seen an increase in activity in H2 2020, particularly towards the latter part of Q4 2020. These companies offered tenants the much-desired flexibility in lease tenures, rentals and occupancy, which has helped tenants maintain business continuity in these uncertain times. This trend is expected to help revive co-working demand in the coming quarters.
• In terms of location, the Suburban Business District (SBD) – Old Mahabalipuram Road (OMR) micro market accounted for 63%, the highest of the total H2 2020 transactions driven by the IT sector companies that dominate this zone. In terms of the total transacted area, SBD-OMR saw a 186% YoY increase from 0.07 mn sq m (0.7 mn sq ft) in H2 2019 to 0.2 mn sq m (2.0 mn sq ft) in H2 2020.

·         The average deal size has gone up from 3,026 sq m (32,567 sq ft) in H2 2019 to 4,620 sq m (49,732 sq ft) in H2 2020. Nine large transactions (4,654 sq m or 50,000 sq ft and above) accounted for 77% of the total number of H2 2020 transactions causing the jump in the average deal size and indicating an increase in the average floor plate requirement of occupiers.

·         The city level weighted average transacted rentals in Chennai have held up against the pandemic pressure and recorded a near 0% YoY growth in 2020.

 

QUARTER SNAPSHOT

	Q1 2020	Q2 2020	Q3 2020	Q4 2020
Transactions mn sq m (mn sq ft)	0.1 (1.3)	0.01 (0.1)	0.07 (0.7)	0.2 (2.4)
Transactions as % of 2019 Quarterly average	98%	4%	57%	187%
New completions mn sq m (mn sq ft)	0.3 (3.3)	-	0.01 (0.1)	-
New Completions as % of 2019 Quarterly average	750%	0%	15%	0%

Source: Knight Frank Research

 

Srinivas Anikipatti, Senior Director – Tamil Nadu and Kerala, Knight Frank India, “The Chennai commercial office real estate market has seen a steady annual demand of around 4 mn sq ft for more than a decade. In 2020, despite the pandemic, the office market has recorded a healthy leasing volume of 4.5 mn sq ft. After a decadal high in transactions last year, the demand momentum continued to remain strong in Q1 2020 and was muted only by the onset of the COVID pandemic and the ensuing market uncertainties.  Even then, H2 2020 recorded the second highest half-year transaction volume in this decade. BFSI and IT sector companies have been the drivers of this demand. Also, large transactions (50,000 sq ft and above) have dominated office absorption activity in H2 2020 indicating the larger floor plate requirements of occupiers in the post-COVID world.”

 

Srinivas further added, “The recently announced metro and airport projects by the government will enhance connectivity and boost the city’s commerce. The new sunrise sectors in Chennai are data centres, electric vehicles (EV), defence, aerospace, renewable energy (wind and solar), tech textile and pharmaceuticals which will continue to drive the demand for commercial real estate in the city.”

 

SECTOR-WISE SPLIT OF TRANSACTIONS

Industry	H2 2019	H2 2020
BFSI	13%	22%
Co-working	5%	2%
Information Technology	53%	58%
Manufacturing	9%	3%
Other Services	20%	15%

Note: BFSI includes BFSI support services

Source: Knight Frank Research

 

RESIDENTIAL MARKET HIGHLIGHTS OF CHENNAI

 

Source: Knight Frank Research

 

·         Chennai’s residential market launches stood at 3,714 home units in H2 2020 and 7,234 home units in 2020. The city recorded sales of 5,673 home units in H2 2020 and 8,654 home units in the year 2020.

• Sales in the year 2020 picked up momentum in Q3 2020 on account of the pent-up demand of Q2 2020, and because of the new demand set in motion with the restoration of economic activities in Q3 2020. Consequently, Q3 sales reached 73% of the 2019 quarterly average.  The Q4 2020 sales show a 16% QoQ dip as homebuyers hold onto their purchase decisions for the auspicious festivities of Pongal in the month of January that brings attractive festive schemes and discounts.
• Residential prices have been subjected to tremendous pressure this year with the COVID pandemic derailing the momentum of both sales and launches. The weighted average residential prices at the city level have seen a 9% YoY dip in 2020. On a positive note, these low prices have attracted significant demand and help boost the city's sales momentum, particularly since Q4 2020. The demand continued to remain strong in the ready-to-move-in projects resulting in unsold inventory numbers declining by 10% YoY to 12,190 units in H2 2020.  
• In terms of geography, West Chennai was a favourite with both launches and sales in H2 2020. Popular locations in the west include Koyambedu, Mogappair, Porur and the upcoming Manapakkam neighbourhood.

·         Besides these, Tambaram and Siruseri in South Chennai and Avadi and Thiruvallur in North Chennai are other popular residential catchments in the city, especially for the affordable housing segment. With office space demand picking up in the Old Mahabalipuram Road (OMR) belt, projects in Egattur, Shollinganallur and Navalur have also seen an increase in traction in H2 2020.

• The beginning of construction of the 119 km second phase of the Chennai metro in November 2020 is a welcome boost to the city’s infrastructure. Phase 2 covers three corridors – Corridor 3 from Madhavaram to Sipcot, Corridor 4 from Poonamallee to Light House and Corridor 5 from Madhavaram to Shollinganallur – and will enhance inter-city connectivity. The Tamil Nadu state government has also been exploring options for the proposed second Chennai international airport location, which will increase the city’s air-passenger and air-cargo handling capacity.

 

 

QUARTER SNAPSHOT

	Q1 2020	Q2 2020	Q3 2020	Q4 2020
Sales (housing units)	2,981	-	3,085	2,588
Sales as % of 2019 Quarterly average	70%	0%	73%	61%
Launches (housing units)	3,520	-	2,547	1,167
Launches as % of 2019 Quarterly average	122%	0%	88%	40%

Source: Knight Frank Research

 

Srinivas Anikipatti, Senior Director – Tamil Nadu and Kerala, Knight Frank India,“Chennai’s residential real estate demand is already in recovery mode in H2 2020 and the ready-to-move-in projects are seeing good traction. The affordable housing segment, the mainstay of Chennai’s residential market, is seeing the highest rate of conversion. The attractive mix of multi-decadal low home loan interest rates, low residential prices and higher household savings are helping boost the sales momentum. Further, about 240 housing projects in Chennai have received approval from TN RERA authority in 2020, indicating a positive trend in launches for 2021.  Both developers and homebuyers are eagerly awaiting the upcoming festive quarter of Pongal i.e. January-March as the favourable combination of an auspicious occasion and festive discounts bring in cheer to the residential real estate market every year. State governments focus on infrastructure and investments would certainly garner housing growth for the next few years. Tamil Nadu has witnessed over INR 66 bn investment assurance in year 2020 which will further boost sentiments and employment growth. Construction commencement of Metrorail phase 2 spanning 118.9 km connecting various part of the city would improve connectivity and fuel home buying decisions along these corridors. DPR preparation of Chennai's second airport and other industrial parks around Chennai would further expand urban limits."