M A R K E T B E AT CHENNAI Office Q2 2020 Surprising spurt in leasing but fresh demand hit by uncertainty and business volatility The Chennai office market recorded nearly 1.25 msf of leasing activity in Q2, up by 77% on a q-o-q basis (31% lower y-o-y). Several transactions in their last leg before the COVID-19 induced lockdown were concluded, with those occupiers exhibiting confidence about their long term business prospects. Some of the major deals included captive centres of BNY Mellon and Walmart Labs. Other transactions involved fresh leasing from Engineering & Manufacturing majors such as KLA-Tencor and ABB. Term renewals were also witnessed from Tech and professional services majors such as TCS and McKinsey. Net 0.48 msf NET ABSORPTION (Q2 2020) absorption at 0.48 msf in Q2 was more than twice as compared to Q1 as the new supply addition of 0.47 msf was already fully pre-leased in 2019. However, fresh demand in the short term has been affected due to the prevailing business uncertainty. It is however expected that the office market will show resilience and green shoots of recovery by end-2020 and in 2021. Term renewals accounted for nearly 13% of the leasing activity in Q2, as tenants were looking to 9.25% GRADE A VACANCY (Q2 2020) renegotiate better commercial terms to take advantage of the market conditions. Several ongoing transactions, totalling about 3.0 msf of active demand, have been deferred in the short term as tenants are focused on cost optimization and are re-evaluating space strategies. In fact, some flexible space operators have reduced their footprint, driven by COVID-19 related centre vacancy amid uncertainty and volatile business conditions. Amidst continued lockdown in the UPCOMING SUPPLY city, many tenants are still in a “wait-and-watch” mode while evaluating existing space footprint and drawing up contingency plans. 12.22 msf (H2 2020 - 2022) Limited new supply in Q2, marginal reduction in vacancy; part of the upcoming supply deferred to 2021 The overall vacancy in Chennai dropped by 11 bps q-o-q to 9.25% during the quarter, with the higher leasing activity and pre-commitments in new completions supporting the trend. Guindy and Pre-toll OMR submarkets continued to show tight vacancies of 2.48% and 3.29% respectively. A new supply of 0.47 msf (DLF IT Park Block 11) was recorded in Q2 and was fully pre-leased. Some projects, which were awaiting final approvals, have been deferred to H2 amidst the MARKET INDICATORS ongoing lockdown. While construction activity resumed in the previous weeks another round of lockdown created more challenges and it remains well below OVERALL Q2 2020 pre-COVID levels with developers struggling with labour shortage issues even as they factor in lower demand momentum in the short to medium term. Developers are largely focused on completing projects that are already pre-leased. Given the adverse market conditions and labour/resource constraints, 12-Mo. nearly 2.0 msf of projects that were earlier scheduled for completion in 2020 have been rescheduled to 2021. Timelines for larger projects targeted for Q2 2019 Q2 2020 Forecast completion over the next 12-18 months, have also been revised. Overall 8.42% 9.25% Rental stability with landlords to be strategic in offering concessions Vacancy Overall grade A rents at the city level have largely remained stable during the quarter despite a reduction in active space demand, though landlords are Weighted Average showing increasing flexibility during discussions. CBD and Guindy submarkets have witnessed a marginal dip (~0.5-2%) on a quarterly basis as occupiers are Net Asking Rents 55.37 57.93 (INR/sf/month) actively seeking rental renegotiations and discounts on renewals. However, landlords are being strategic in offering rental concessions and discounts across different corridors. Given higher vacancies and an upcoming supply of about 3.0 msf over the next 18-24 months, occupiers in the Post-toll OMR, Pallavaram YTD Net 1,418,311 683,721 and Tambaram submarkets could expect better discounts in the short term as compared to locations with lower vacancies such as Guindy, Perungudi and Absorption (sf) Taramani. Overall vacancy at the city level is expected to remain at around 9-10% levels till the end of the year. SPACE DEMAND / DELIVERIES OVERALL VACANCY & ASKING RENT 3.5 75.00 12.00% 3 60.00 10.00% 2.5 8.00% 45.00 2 6.00% 30.00 1.5 4.00% 1 15.00 2.00% 0.5 - 0.00% 0 2016 2017 2018 2019 Q1 2020 Q2 2020 2020F NET ABSORPTION (MSF) NEW SUPPLY (MSF) WEIGHTED AVERAGE RENTS (INR/SF/MONTH) OVERALL VACANCY(%) M A R K E T B E AT CHENNAI Office Q2 2020 MARKET STATISTICS GRADE A WTD. AVG. RENT* YTD GROSS PLANNED & UNDER INVENTORY YTD CONSTRUCTION YTD NET SUBMARKET VACANCY LEASING ACTIVITY# CONSTRUCTION (SF) COMPLETIONS (SF) ABSORPTION (SF) (SF) (SF)^ INR/SF/MO US$/SF/YR EUR/SF/YR CBD 2,685,809 12.47% 176,183 377,415 - 121,004 78.77 12.50 11.08 Off-CBD 544,110 31.24% 21,654 50,000 - -11,252 75.00 11.90 10.55 South-west 11,910,740 2.48% 334,377 3,564,004 535,000 474,222 73.41 11.65 10.33 North-west 3,232,000 23.83% 34,250 - - -155,973 45.00 7.14 6.33 Suburban South 16,450,412 3.29% 505,775 3,928,100 - 127,737 75.60 12.00 10.64 Peripheral South 11,882,105 16.25% 214,271 100,000 - 127,983 50.10 7.95 7.05 Peripheral South-west 4,292,000 15.66% 667,367 4,202,239 - - 59.51 9.45 8.37 TOTALS 50,997,176 9.25% 1,953,877 12,221,758 535,000 683,721 57.93 $9.20 €8.15 The report highlights Grade A details only. Certain indicators are historically corrected by addition / deletion of older / refurbished projects as per grade A classification and accounting for changes in built-up / leasable area besides adjusting tenant leases to reflect accurate market conditions. Net absorption refers to the incremental new space take-up #YTD gross leasing activity includes pre commitments and term renewals Rohan Sharma ^Includes planned & under construction projects until 2022 Director, Research Services *Weighted average asking rental rates for vacant spaces that provide core facility, high-side air conditioning and 100% power back up +91 124 4695555 /[email protected] Key to submarkets: CBD – Anna Salai, Nungambakkam, RK Salai; Off-CBD – T.Nagar, Alwarpet, Kilpauk, Egmore, Chetpet, Royapettah, Anna Nagar, Kotturpuram; Peripheral South- Sholinganallur, Kapil Kanala Thoraipakkam, Navalur, Siruseri, Padur; Suburban South – Perungudi, Taramani, Thiruvanmiyur, Velachery; South West – Guindy, Ashok Nagar, Vadapalani, Manapakkam, Ekkaduthangal; Associate Director, Research Services North West – Ambattur, Padi, Koyambedu, Arumbakkam; Peripheral South-west – Singaperumalkoil, Tambaram, Guduvanchery, Perungalathur, Pallavaram. US$ 1 = INR 75.6 € 1 = INR 85.3 +91 40 40405555 /[email protected] Numbers for the first quarter are based on market information collected until 15th June 2020 cushmanwakefield.com KEY LEASE TRANSACTIONS Q2 2020 PROPERTY SUBMARKET TENANT SF LEASE TYPE A CUSHMAN & WAKEFIELD RESEARCH PUBLICATION Cushman & Wakefield (NYSE: CWK) is a leading global Embassy Tech Zone Block 3 Peripheral South-west Bank of Newyork Mellon 400,000 Fresh Lease real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is RMZ Millenia - Campus 4B Suburban South KLA-Tencor 50,000 Fresh Lease among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 SIGNIFICANT PROJECTS PLANNED AND UNDER CONSTRUCTION countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project PROPERTY SUBMARKET MAJOR TENANT SF COMPLETION management, leasing, capital markets, valuation and other Brigade WTC Tower A Suburban South NA 1,000,000 Q3 2020 services. The Gateway Office Parks - Block A3 Peripheral South-west NA 502,125 Q4 2021 ©2020 Cushman & Wakefield. All rights reserved. The information Embassy Tech Zone Block 1 Peripheral South-west NA 610,000 Q3 2022 contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy..