Lease rates of office space in Chennai are likely to display a firm trend till the third quarter of calendar year and stabilise thereafter, forecast real industry hands.
As was the case last year, the rates are being driven upward by the demand generated by the information technology sector and information technology enabled sector.
International real estate consultant, Cushman & Wakefield India's joint managing director, Sanjay Verma, says Chennai market was hampered on account of a lack of supply a while ago.
Increased supply in 2005 has further encouraged growth in demand. Commercial lease space absorbed was almost double to 3.5 million sq ft during 2005.
"However the current state of the market still has demand outweighing supply which is likely to continue till second and third quarter of 2006," adds Verma.
Dinesh Hemdev, partner at Hemdev's Real Estate, says that lease space taken up by IT companies and ITES companies went up by 10 per cent to 15 per cent during 2005. Almost 90 per cent of office space was taken up by software companies.
At present, the average lease price across all areas is about Rs 30 to Rs 40 per sq ft per month. Locations in central business district and areas in information technology corridor and Guindy (an old industrial estate within the city that is being taken over by the IT industry) tend to be a little higher.
Last year, Chennai's real estate market witnessed a few noteworthy individual lease deals that added to the buoyancy in the price trend. Among deals that captured attention were those of IT majors HCL and Cognizant Technology Solutions.
HCL has signed a nine-year lease contract in November with Arihant Foundations & Housing Ltd to occupy its software park of 250,000 sq ft at Perungudi. HCL will be moving in March when the project is fully complete. It is expected that HCL will house 2,000 employees.
Cognizant Technology Solutions has signed the leased facility of Cee Dee Yes software park on the Perungudi bypass Road. The complex with a built-up space of 150,000 sq ft has recently been completed and Cognizant is in the process of occupying the building.
R Rajagopalan, vice-president-finance and administration, Cognizant Technology Solutions says that Cognizant will occupy the entire building and accommodate approximately 1,500 professionals.
Software companies prefer leased facilities so as to keep away huge cost accounted in balance sheet that are involved in having a own facility. Only when these software companies grow in size and reach a critical mass do they go for own campuses.
"Our current thinking is to have about 70 per cent of the facilities as fully owned and the remaining as leased facilities as, as that plays well into our financial model," adds Rajagopalan of Cognizant.
The conclusion or near conclusion of large commercial real estate projects have added impetus to the lease market.