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Chennai suffers the onslaught of the current slowdown in the real estate sector

09 January 2014

Knight Frank India today, launched its Residential & Office research report on the Chennai realty market. The report focuses on how the Chennai market has fared in the wake of a sluggish economy.

Owing to weakening demand, the residential market will require 7 quarters to exhaust the existing unsold inventory compared to 5 in 2012:

- Sluggish buyer’s sentiments resulted in decelerating sales over the last four quarters
- The city witnessed a drop in sales volume to the tune of 33% in 2013
- Developers responded by reducing new launches by a whopping 35% over 2012
- Prices continued to rise in the range of 5-7% despite the significant drop in sales volume
- West Chennai is expected to attract buyers in the coming quarters on the back of some emerging employment hubs
- The upcoming metro corridor will be instrumental in driving demand in other locations within Central Chennai

The office market struggled to survive amidst the gloomy economic predicaments in the country:

- Chennai garnered absorption of 3.5 mn sq. ft. in 2013; a drop of 15% from the previous year
- This is a significant decline in comparison to other major cities that held on to their 2012 levels
- The lower level of absorption in 2013 comes as no surprise and reveals the cautiousness in the Chennai market 
- Positive traction in the IT/ITeS sector aided in restricting a further drop in absorption levels
- The sector witnessed absorption to the tune of 70%, depicting a remarkable come-back since its share dipped to 47% in 2011
- The CBD and Off-CBD of the city remain one of the preferred office markets, mainly by small and mid-sized IT/ITeS companies and other service sectors
- Sectors with requirement of smaller office spaces may leverage demand in 2014

Speaking about the research report, Shishir Baijal, Chairman & Managing Director, Knight Frank India said, “The year 2013 has not been very kind to the Chennai market and like all the other major cities in the country even Chennai has suffered the onslaught of the current slowdown in the real estate sector. While Factors such as slowing economic growth, rising interest rates and high inflation have contributed towards building a negative sentiment within the residential space, the city’s office market too, fell behind the peak levels of 2011 by 23%. The year 2014 has been ear-marked as a very important period, owing to the impending formation of a new central government at the helm. Sentiments are expected to improve, but they need to sustain for some time in order to bring in the required confidence in the market”.

Dr. Samantak Das, Chief Economist, Director-Research & Advisory Services, Knight Frank India: "The drop in absorption and launches during 2013 has drastically shrunk the size of Chennai market. The negative sentiment prevailing among home buyers across the country seems to have finally trickled down in this market too. However, the swift reaction from developers in terms of decrease in new launches, marginal reduction in prices and introduction of innovative schemes is expected to revive sales volume in the coming months. The office market too has witnessed a drastic drop in absorption numbers which is bad news for the market especially when you compare it to the other major metros which have held on to their 2012 levels. While the IT/ITeS sector will continue to drive demand in the coming year, the Small & Medium Enterprises (SME) sectors with requirements of smaller office spaces will show increased activity, providing an opportunity to the developers to tap this demand.”

Adds Kanchana Krishnan, Branch Head-Chennai, Knight Frank India: “Chennai’s office market witnessed a drop of 15% in absorption levels as compared to 2012. Residential sales too, saw a sharp decline to the tune of 33% in comparison to the same period. While we remain cautious on this market for the initial few months, sentiments are expected to improve and stabilise by the second half of 2014”.
 

For more information, contact 
Sukanya Chakraborty, Head - Marketing Communications & PR at +91 22 6745 0101 / sukanya.chakraborty@in.knightfrank.com 
or
Arjun Choudhury, Marketing Communications & PR at  +91 22 6745 0101 / arjun.choudhury@in.knightfrank.com