Physical distancing norms have changed how offices occupy spaces. While we are now witnessing a gradual increase in business activity, the sector is likely to remain under pressure in the first half of 2021. We expect sentiments to improve with a moderate to strong recovery in the latter part of 2021. But this will depend on various factors such as subsequent waves of the pandemic and availability of vaccine.

In the case of Chennai, the commercial real estate sector is likely to witness quicker recovery. Even during the pandemic, Chennai saw the least decline in the absorption of office spaces among metros. This is attributed to good leasing activity in a few micro markets. There were healthy leasing activities in Guindy, Mount Poonamallee Road (MPR) Pallavaram Thoraipakkam Road (PTR) and OMR Pre-Toll micro markets.

Gross office absorption year to date is (4.33 Mn sqft). Chennai saw 6 million sqft of space being absorbed last year with a good amount of pre-commitment for this year. Many of these pre-commitments have been honoured by occupiers this year despite the pandemic.

While the number of transactions has come down vs same time last year, the size of the transactions has increased. An interesting point to note here is that approximately 2.85 mn sqft of space has been taken up by Special Economic Zones (SEZs) with major contributions from the IT, banking and e-Commerce sectors. The infrastructure boost in Chennai will remain the key factor responsible for an increased space take-up by offices in the longer term when things bounce back to normalcy.

On the supply front, there were limitations as lockdown and labour issues caused a temporary halt in construction activities for a significant portion of Q2 this year. However, there was still more office stock added to Chennai’s portfolio in H1 2020 (3.5 mn sqft) compared to H1 2019 (2.8 mn sqft). This can be attributed to the pre-ordained plans for the phased launch of quality office spaces by developers in the city to meet the expected demand from multinational companies. Most of the stock catering to the anticipated demand had come into the market before the pandemic hit construction-related activities. Some buildings are facing delays in receiving completion certificates and we expect addition of 4 to 5 mn sqft of grade A office space to the city stock in the next 12 months.

With companies gradually resuming offices, there is a resurgence for different kinds of spaces such as flexi-spaces in Chennai. Occupiers looking to benefit out of short and flexible lease structure and zero CAPEX will look at exploring shared or co-working spaces. Enquiries for both flexible offices and conventional office spaces have continued despite the pandemic. Few smaller occupiers have chosen to give up conventional office space and have opted for flexible workspaces in the short to medium term. This will help occupiers to save costs as well as allow them to opt for flexible lease structures in such uncertain times.

Some occupiers may recalibrate their future office space needs as corporates increasingly accept the work-from-home concept. But despite this, standalone and conventional offices will continue to remain relevant and a preferred choice for most companies. As businesses start getting back to normal, we are witnessing a gradual increase in companies beginning to work from their offices. This is likely to go up in the coming months.

The majority of occupiers continue to prefer grade-A campuses with a good ecosystem. Proximity to tech parks and public transportation, as well as scalability within campuses, are driving factors for any commercial office development. Priorities also include health and safety factors now due to the pandemic.

Below are the trends that are likely to dominate Chennai’s office space market:

• Flexi spaces: We will witness some occupiers shifting to flexible/shared office space by giving up part of their office portfolio to save cost

• ‘Hub and spoke’ model: Some companies will have a headquarter as its hub and smaller offices closer to employee catchments as spokes. This portfolio could be a mix of conventional and flexible spaces

• Hybrid model: It is a mix of work-from-home and work-from-office

• High demand from sectors that are performing well such as e-Commerce, healthcare, and BFSI

• Practicing high level of safety measures in office spaces to ensure smooth continuity of business.

The author is MD, Chennai, Savills India