Demand for IT office space perks up in Chennai

Demand for IT space along the Old Mahabalipuram Road has made a strong comeback. Lease rates are firming up and developers have stopped offering freebies and incentives.



Office space demand is picking up steadily with IT companies on an expansion mode. While recent reports of a possible slowdown in the West are casting some shadow, companies with plans charted out for the coming year are sticking to their plans and deals are happening, say real estate sources.

On the Old Mahabalipuram Road, to the south of Chennai, which has developed as the IT corridor because of its concentration of IT companies, space is being leased fast. Prices are firming up, especially in the stretch close to the city, from Adyar up to the toll gate about 5 km away.

The TRIL Infopark, the integrated IT SEZ with residential space, convention centre and services apartments, is at an advanced stage of completing its SEZ space and in a couple of months will start work on the commercial space in the non-processing zone. While those directly connected with the project do not give out specific numbers, prelease, that is a confirmed deal before space is actually handed over to the client for fit-outs, are happening.

Mr C. Velan, Executive Director and Chief Executive Officer, Tril Infopark, confirmed that over 1.3 million sq.ft of IT SEZ space spread across two towers has been preleased and one building has been given for fit-outs and the other will be handed over to the tenants in November for fit-outs.

Two more blocks totalling about 2 million sq.ft are under construction and about 1.4 million sq.ft will be ready in March 2012. There are enquiries for over a million sq.ft of space, he says.

Eye on deadline

With the deadline to fully avail of SEZ benefits set for March 2014, the focus is on completing and commencing operations . In a couple of months work will start on the non process area which includes serviced apartments, convention centre and residential space.

Market sources says that quite a number of large players have taken up space at the Tril Infopark including HP, Infosys, Sitel, and CTS. Demand on the OMR is certainly picking up and Tril is at the high end of the leading activity with monthly lease rents around Rs 50-55 a sq.ft. But typically elsewhere on the OMR lease rates which were hovering in the Rs 20s has hit the high Rs 30s, a good news for the developers.

Some of the big names that have taken up space on the OMR include Amazon, Nautica, a back office operation for the Bank of America, and HSBC which has taken up over 2 lakh sq.ft of space.

Mr Badal Yagnik, Managing Director – Chennai, Jones Lang LaSalle, an international property consultant, distinguishes the OMR market as the pre-toll stretch which is closer to the city and 25-km stretch beyond the toll gate.

Leasing activity in the pre-toll stretch is strong while further down the road, there are significant space available for the taking. This could take a couple of years to be fully absorbed.

Strong comeback

Demand for IT space has made a strong comeback after the last quarter of 2010, says Mr Yagnik. After a long time, negotiations for IT space are centred around quality and volume rather than cost , especially in the prime areas on the OMR.

Lease rates of a square foot of built space which was in the high-20s in rupees have gone to the high-30s, he says. Also, developers have stopped offering various freebies and incentives.

Some of the IT space developers in the prime areas include Ascendas, RMZ, SP Infocity and TVH-Agnitio, and the Tidel Park, the decade-old building that marked the start of the IT corridor as it is known today.

Elsewhere in the city too there is a notable level of transactions in IT space with the Shriram Gateway IT SEZ concluding over 4 lakh sq.ft deal with Accenture, and about 80,000 sq.ft of space leased to other clients. The facility has over a million sq.ft of built-up space with 4.5 lakh sq.ft under construction. Work on an additional 4 lakh sq.ft is to start post-monsoon in December, says Mr R. Murugesan, CEO, Shriram Properties, which is settting up the Gateway IT SEZ, near Tambaram, about 20 km south of Chennai on the NH 45.

There is also a healthy pipeline of enquiries including by large clients who are looking at a few lakh square feet of space, he says.

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