Weighted average prices decline by a further 5% YoY in H1 2020
Chennai, July 16, 2020:Knight Frank India today launched the 13th edition of its flagship half-yearly report – India Real Estate: H1 2020 – which presents a comprehensive analysis of the office and residential market performance across eight major cities for the January-June 2020 (H1 2020) period. The report highlights that the new office space completions in Chennai saw an outstanding and unprecedented growth of 1064%YoY to0.3 mnsq m (3.3 mnsq ft) in H1 2020. This remarkable jump is attributed to the entry of one large commercial space in the market in Q1 2020.The ongoing COVID – 19 crisis impacted office market transactions in the city resulting in0.1 mnsq m (1.3 mnsq ft) of total absorption, a 28% YoY decline in H1 2020.Weighted average transacted rentalsfor Chennaihowever grew by a modest 2% YoY in H1 2020.The highest transaction activity was seen in the Information Technology/ Information Technology Enabled Services (IT/ITeS) sector which accounted for 54% in the total transactions in the city in H1 2020. The sector alsoregistered the largest single deal this half-year. On the other hand, co-working sector activity was severely hit by the COVID crisis resulting in a 77% YoY slump in its office space absorption in H1 2020.
According to the report, home sales in Chennai have witnessed a decline of 67% YoY in H1 2020, while launches saw a 55% YoY decline in the same period.According to Knight Frank Research, the INR sub-5 million ticket size sales accounted for 51% of the total units sold in Chennai in H1 2020. The city recorded a further 5.5% YoY fall in weighted average prices in H1 2020.
OFFICE MARKET HIGHLIGHTS OF CHENNAI
Source: Knight Frank Research
- The pandemic and the subsequent national lockdown limited the office space absorption momentum in Chennai. However, while the transaction numbers show a drop, the demand was strong until mid-March 2020 i.e. until the onset of the Covid pandemic. 72% of the total transaction activity in H1 2019 took place in the first quarter of H1 2020 and the second quarter would have further added to it. The nationwide lockdown due to coronavirus caused a complete halt in business and economic activity for a considerable part of Q2.
- In H1 2020, IT/ITeS sector’s transaction activity went up from 0.05 mnsq m (0.5 mnsq ft) in H1 2019 to 0.07 mnsq m (0.7 mnsq ft) in H1 2020, a 31% YoY jump.
The manufacturing industry’s absorption grew as well,recording an 11% YoY growth in H1 2020, on the back of increased activity by renewable energy and engineering companies in the city Also, the Banking Financial Services and Insurance (BFSI) sector transactions accounted for 5% of the total transactions in H1 2020. The sector saw an 82% YoY growth in activity in H1 2020.
- In terms of geography, the Suburban Business District (SBD) saw a surge in transactions in H1 2020, accounting for a whopping 55% of the total transaction activity in H1 2020.
- Weighted average rentals remained stable with a modest 2% YoY growth for the overall Chennai office space. Increased rentals were observed in the SBD (2%) and thePeripheral Business District (PBD) – Old Mahabalipuram Road (OMR) and Grand Southern Trunk Road (GST) PBD – OMR and GST business districts (3%). The Central Business District (CBD) also witnessed a marginal 1% YoY increase in H1 2020, as despite limited supply and high rentals; its city-centric location continues to attract demand.
- Vacancy levels in the city increased to 12.2% in H1 2020 from 9% at the end of 2019. Key factors contributing to this increase were the addition of bulk supply to the tune of 0.3 mnsq m (3.3 mnsq ft) in the market, low absorption numbers, and occupiers surrendering office space on account of the Covid-19 crisis.
Srinivas Anikipatti, Senior Director – Tamil Nadu & Kerala, Knight Frank India said, “Undoubtedly the COVID -19 crisis has halted business momentum and economic activity for a significant part of Q2 2020.The pandemic and the subsequent national lockdown limited the office space absorption momentum in Chennai which was strong in Q1 2020. 72% of the total H1 2019 transactions had already been closed in the pre-Covid phase of H1 2020. With this demand momentum, H1 2020 transactions numbers were likely to outperform H1 2019 absorption figures had the ongoing crisis not put a damper on it.On the supply side,the crisis has led to a 45-50% shortage of labour and scarcer credit availability for developers which has together made it difficult to complete the on-going projects.The lockdown along with the partial operation of businesses post lockdown have created significant challenges for the real estate industry and nothing can be said with certainty about the future.”
RESIDENTIALMARKET HIGHLIGHTS OF CHENNAI
- Chennai’s residential market had just begun to show some promise of recovery in 2019, especially during the second half of the year. The onset of the Covid-19 pandemic sabotaged all hopes of recovery. Both sales and launches took a hit and H1 2020 was the lowest performing period for the Chennai residential market in the last decade.
- Launches plunged by 55% YoY in H1 2020. A lacklustre demand scenario coupled with the lockdowns imposed in the wake of the Covid crisis caused this drop in launches.
- Most launches, 65% of the total in H1 2020, belonged to the INR sub-5 mn ticket size segment which is in sync with the current demand trends. On the other hand, INR >10 mn ticket size units contributed a minor share of 4% in the total launches.
- In terms of location, South Chennai continued to be the preferred choice, accounting for 56% of the total launches in H1 2020. Sholinganallur, Mogappair, Chembarambakkam and Thiruninravur were the micro-markets in Chennai where most of the action was concentrated during H1 2020.
- Sales plummeted by a substantial 67% YoY in H1 2020. This is the lowest recorded sales number for Chennai in the past 10 years. Demand in Chennai residential market had been gradually slowing down since 2015 with a few spurts of growth in between. A major contributor for the H1 2020 demand slump is the ongoing Covid crisis.
- 54% of the total sales were concentrated in South Chennai whereas in terms of ticket size split, the highest sales were recorded in the INR 2.5-5 mn ticket size segment. The share of the INR sub-5 mn ticket size sales has fallen from 60% in H1 2019 to 51% in H1 2020 in line with the overall slump in demand due to the COVIDcrisis.
- Residential prices in Chennai have fallen by a further 5.5% YoY in H1 2020, as developers continued to focus on offloading existing inventories. They have been offering discounts and attractive schemes to lure buyers.
- Unsold inventory numbers dropped by 21% YoY to 14,149 units in H1 2020 while the quarters-to-sell (QTS) stood at 4.1 quarters as of H1 2020.
Srinivas Anikipatti, Senior Director – Tamil Nadu & Kerala, Knight Frank India said, “Market uncertainties in the wake of the on-going pandemic have made the already risk-averse home-buyers, more insecure. The slowdown in the automobile industry, a key Chennai employment driver, along with job insecurities in the present economic condition haveimpacted home purchase decisions of people. Further, as banks and financial institutions tightentheir lending norms, buyers are finding it increasingly difficult to avail credit. Both these factors have taken a serious toll on the sales volumes in the COVID-influenced period of H1 2020. New project launches have also taken the brunt of the crisis as developers now have to grapple with low availability of construction labour, sparse finances and low demand. Until the Covid infection rates plateau or a vaccine is found, there will be uncertainty about the future.”