Post-toll Old Mahabalipuram Road to lead growth for Chennai’s real estate: JLL

Chennai, 17 March 2022: Over the years, Chennai has carved an identity for itself as a stable real estate market. The city has witnessed steady growth in its commercial real estate market and the average annual Gross Leasing Volume (GLV) for the city stands at 4-4.5 million sq. ft over the past 5 years. During the same period, three tech corridors, Secondary Business District (SBD), pre-toll Old Mahabalipuram Road (OMR), and post-toll OMR, together contributed to 80-85% of the total city’s GLV.  Until 2016, the contribution of post-toll OMR to the city’s GLV stood at 19%. However, since the past 5 years, the share has gone up by 7 percentage points. Its closest micro-market counterparts are pre-toll OMR and the Guindy – Mount Poonamallee Road corridor (SBD).

* Net Absorption includes fresh leasing in completed buildings and pre-commitments in buildings that become operational during the time being reviewed. * Gross Leasing Volumes (GLV) includes fresh leasing in completed buildings, pre-commitment deals in under-construction buildings, churns, and excludes renewals

Since the establishment of the OMR Information Technology corridor and in the past 5 years, post-toll OMR’s contribution to the total city’s net absorption at 15% was lagging. The SBD and pre-toll OMR had an average contribution of 35-40% each. However, post-2016, with an ever-increasing demand from the tech sector, the evolution of Pallavaram-Thoraipakkam Road (PTR), improving infrastructure along with adequate space availability at competitive rentals compared to the other tech markets in the city have helped push the average net absorption contribution up to par with SBD and SBD OMR. Many global firms have expanded their footprint in this corridor in the past two years.

Post-toll OMR retains its cost competitiveness

The average rents in post-toll OMR are lower by 50-60% (standing at INR 48-50 per sq ft per month) compared to the tech corridors of SBD and SBD OMR and this factor makes the market more attractive for tech players and Micro, Small & Medium Enterprises. Over the decade, average office rents have appreciated in this corridor by almost 40-45% compared to a 30-35% increase in the SBD submarket, but post-toll OMR still manages to retain is cost advantage.

The fastest-growing office market

Around 10 million sq ft of Grade A office space is expected to be operational in this submarket in the next 5 years with a current pre-commitment rate of 20% already achieved and almost 80% of the supply coming from PTR, while the other tech corridors contribute to only 6-7 million sq ft of supply addition over the same time. Quality supply, healthy pre-commitments, affordability, and lack of options in pre-toll OMR are key factors that are expected to push demand towards PBD OMR in the years to come.

“Post-toll OMR, also called PBD OMR, is a key growth corridor in the Chennai real estate market.  It is one of the most established IT corridors of Chennai. This corridor has witnessed rapid growth over the past two decades and is now coming into its own as a holistic real estate development hub. Good connectivity, proximity to the airport and the central parts of the city, availability of adequate large-sized land parcels, and competitive costs have seen a host of commercial developers make a beeline to this corridor,” said Siva Krishnan, Managing Director, Chennai & Coimbatore and Head - Residential, India, JLL

This IT boom along with the development of SEZs has made a huge positive impact on this corridor.

“From 2011 through 2021, the Grade A office stock in Post-toll OMR has risen significantly from 9 million sq. ft to 15 million sq. ft contributing to 23% of the total city’s Grade A office stock (65.8 million sq. ft). Over the past 5 years, the annual growth rate of stock in post-toll OMR is higher than its counterpart pre-toll OMR while it lags in the SBD corridor. With post-toll OMR now accounting for a 26% share of leasing activity and with a healthy supply pipeline lined up, this corridor will be a major occupier activity hub going forward. The contribution of post-toll OMR in the residential activity in the city has also become quite significant. With social and physical infrastructure also improving, the corridor is poised for well-rounded development,” said Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL

Over the past few years, post-toll OMR has gained the interest of major institutional investors. Many global companies have started their operations in this corridor through such tech parks.

Strong supply infusion over the decade

A holistic development corridor

Post-toll OMR with its emergence as a major office location has also become a major residential hub. Southern suburbs, of which post-toll OMR is a major part, is one of the most active residential markets in the city contributing to almost 50-60% of the total city’s sales and launches. In the past 5 years, almost 50% of the launches in Southern suburbs were concentrated in post-toll OMR out of which 60-65% units have already been sold.

Sholinganallur, Navalur, Siruseri, Thalambur, Pallavaram-thoraipakkam Road, Kelambakkam, Padur are some of the prominent locations which drive residential demand in the post-toll OMR corridor.  Affordable (below INR 40 lakhs) and mid-segment (INR 40-80 lakhs) contribute to more than 60%-70% of the total residential stock in this corridor. The dominant configuration in this corridor is 2 BHK and 3BHK with an average size of 950 sq. ft -1200 sq. ft.

This corridor offers a wide range of properties from affordable to luxury segments.

Although post-toll OMR is predominantly an end-user market as most of its residents are IT employees, it has also been the investor’s delight over the past decade due to healthy price appreciation. Even though the average capital value has risen from INR 2300/ sq. ft to INR 4500/ sq. ft in the same period, auguring well for the development of this corridor, post-toll OMR remains one of the most affordable housing markets in the city. This corridor continues to attract both home buyers and investors alike due to its rapid growth and property appreciation.

Infrastructure augmentation push

The Government of Tamil Nādu has proposed some infrastructural development plans to further strengthen the connectivity along post-toll OMR which is expected to give a further fillip to real estate development in this corridor. The most important project is Phase 2 of Chennai Metro Rail which will run from Madhavaram to SIPCOT (State Industries Promotion Corporation of Tamil Nadu) in Siruseri connecting North Chennai with the south. This will largely benefit the localities in PBD OMR.  Locations such as Siruseri, Shollinganallur, Navalur, PTR in PBD OMR have already witnessed price appreciation of 2-4% since the announcement of Metro. The proposed 3-deck elevated corridor which will run from Taramani to Siruseri and the Chennai peripheral road project will boost seamless connectivity.

Promising Future

Post-toll OMR submarket is gaining prominence as an office location with a good quality supply pipeline by reputed national and international developers and is expected to compete with SBD and SBD OMR. The emerging Pallavaram -Thoraipakkam Road is enhancing prospects of real estate growth in the PBD OMR corridor. The affordability, availability of land parcels for development, physical infrastructure along good connectivity offered by this submarket will continue to attract commercial and residential investments in the years to come. This corridor boasts of excellent social infrastructure including reputed schools and hospitals along with good spots for leisure, entertainment, and shopping malls like BSR Mall, Grand Marina Mall, etc.