Chennai Real Estate

A Closer look

 Chennai Real Estate A Closer Look

Chennai Real Estate Timelines

STPI starts operations at Chennai Deccan Chronicle Groups Odyssey opened its first bookstore in Chennai

1995 2006
Residential property prices in Chennai City skyrocket almost doubling in capital value compared to previous year Olympia Tech Park -an 1.8 million sq. ft IT space and the worlds largest LEED Gold rated green building - becomes operational Kathipara Flyover - largest cloverleaf flyover in the whole of Asia - inaugurated and open to public Ennore SEZ gets formal approval to setup a multiproduct SEZ

The City of Madras changes its name to Chennai MRTS - Mass Rapid Transit System railway lines becomes operational

Ford inaugurates its first manufacturing unit in India - a JV with Mahindra

1996 2007 1997 2008 1998 2009 1999 2010

Mahindra Group sets up Mahindra World City - first integrated business city in the Public Private Partnership (PPP) model

Tamil Nadu Road Development Company Ltd (TNRDC) a JV between TIDCO and IL&FS was incorporated to develop road sector initiatives in PPP model

MARG Group launches MARG Swarnabhoomi - the 4 Carat Neo City with 2 notified Special Economic Zones

Phase 1 of IT Expressway - 0 Kms stretch from Madhya Kailash to Siruseri - becomes operational Tata Housing launches its first-ever affordable housing project in Oragadam Tamil Nadu Urban Infrastructure Services Limited (TNUIFSL) appoints JLL to prepare re-development plan to create world class retail facilities with an integrated range of activities Chennais largest Mall - Express Avenue Mall - becomes operational

TIDEL Park - Chennais first IT Park - became operational

2000 2011

By December 011, 1 operational malls in Chennai

The largest bus station in Asia Chennai Moffusil Bus Terminus was inaugurated in Koyambedu

2001 2012 2002 2013

Phase 1 of Kattupalli Shipyard - a mega project jointly developed by TIDCO and Larsen & Toubro (L&T) near Ennore to become operational

MEPZ - Chromepet was converted into a Multi-product Special Economic Zone (SEZ)

2003 2014

Infosys Technologies lays foundation stone for IT Campus on 16 acres at Mahindra World City, New Chennai

2004 2015

Total Stock of Chennai Office / Commercial space expected to cross 60 million sq ft, Proposed India-Singapore SEZ at Thiruvallur, a JV between TIDCO & Ascendas (Singapore)

Airport Authority of India (AAI) expects greenfield airport at Sriperumbadur to be operational

Nokia inks deal with TN Government to setup an SEZ in Sriperumbadur - Shenzen of India

2005

Source: Real Estate Intelligence Service (Jones Lang LaSalle)

 Chennai Real Estate A Closer Look

Chennai
Chennai is the fourth most populous metropolitan area and the fifth most populous city in India, with the urban agglomeration having an estimated population over 1.4 million people1. Chennais economy has a broad industrial base in the automobile, computer, technology, hardware manufacturing, financial services and healthcare industries. Known as the Detroit of Asia, it accounts for over 60% of the countrys automobile exports. The city is Indias second largest exporter of software, information technology (IT) and information-technology-enabled services (ITES), next to Bangalore. As the Entertainment Capital of the South, it is also home to the large South Indian Tamil film industry. The State Government of Tamil Nadu, after successfully establishing IT and Industrial Parks, is in the process of setting up Financial City and Media Entertainment Park, with an investment of over USD .5 billion. Chennais economic development has been closely tied to its port and transport infrastructure. The city is served by two major ports namely Chennai Port (one of the largest artificial ports) and Ennore Port. The Chennai port is Indias second busiest container hub after Mumbai. A rapidly growing population has increased the strain on Chennais Figure 2: Major Infrastructure Initiatives in Chennai Expansion of Existing Airport and Green field airport in Chennai Expansion of existing international airport for which 1,070 acres of land has been acquired. Greenfield airport proposed in Sriperumbudur for which 4,820 acres of land need to be acquired for expansion. A Detailed Project Report (DPR) relating to the Chennai Metro Rail Project was prepared and submitted by the Delhi Metro Rail Corporation Limited (DMRC). The DPR envisages creation of 2 initial corridors - the first from Washermenpet to Airport and the second from Fort to St Thomas Mount under the proposed Chennai Metro Rail Project. Widening of Ennore Expressway a 6.8 kms stretch connecting Chennai Port and National Highway network and improvement of arterial roads at an estimated cost of INR 1.5 billion Tamil Nadu Government has declared the 0 kms stretch of Old Mahabalipuram Road from Madhya Kailash to Siruseri as IT Corridor which further extends to Mahabalipuram in the second phase. IT Expressway will be a 6-lane world-class highway with all attendant facilities. Proposal for expansion of East Coast Road (New Mahabalipuram Road) into 4-lane road. The CMDAs ambitious Outer Ring Road covering 6 kms is to be done on BOOT model. Indias longest 4-way elevated expressway from the Chennai port to Maduravoyal will be ready in 01 with project cost around INR 16.55 billion. Proposal for extension of the Mass Rapid Transit system from Velachery to St.Thomas Mount in the Phase III. transport. A comprehensive rail network system is the next thing in the State Governments ambitious plan to provide a diversified transport system for the city. The Government plans to have a 00-km monorail in a phased manner. Thus, Chennai will have the distinction of having four rail-network systems - the Chennai sub urban railways consisting of the electrical multiple units (covering a distance of 86 Kms) and the mass rapid-transit system (covering a distance of 5 Kms) , the other two being the metro rail (covering 45 Kms in Phase-I) and, in future, monorail. With four major National Highways radiating outward from Chennai, the city is also served by the three major ring roads that are being developed. Similar to the MRTS rail system, a BRTS (Bus Rapid Transit System) is planned which will cover a distance of 70 Kms of Circular Corridor. An extension of the BRTS is the Chennai High Speed Circular Transportation Corridors (HSCTC) which is planned in select corridors, forming an elevated -tier system. At a distant future of completion is the proposed Chennai Elevated Expressways (CEE), a Road Network Development Scheme of the Second Master Plan by CMDA for the Chennai city. With the above proposed Chennai is expected to have four road-networks by year 00.

Proposed Metro Rail Corridor

Ennore - Manali Road Improvement Plan (EMRIP) Chennai Port Connecting Project

IT Expressway and ECR Road

Outer Ring Road Elevated Express Way Extension of the MRTS line from Velachery to St.Thomas Mount
Source: Jones Lang LaSalle Research
1Includes

Chennai, Thiruvallur and Kancheepuram per the Census of India 011 Provisional Numbers

4 Chennai Real Estate A Closer Look

Trends in Commercial Office Space in Chennai

Chennai Office Stock to be Comparable to that of Present Day Mumbai by 2015
The Chennai office market has witnessed remarkable growth from nearly 10 million sq ft in 4Q05 to 45 million sq ft in Q11. Every 1 quarters, Chennai has added 20 million sq ft of office space since 2006 (Figure 3). The growth has been mainly led by offices built for the IT industry (as IT Parks or IT Special Economic Zones), which constitute 86% of the operational office stock in Chennai. With 17 million sq ft of supply expected during Q11-4Q15, Chennai will continue to add more office space, and attain the current size of office stock of Mumbai during 2015. Adequate volumes of office supply will keep hitting the markets every quarter, keeping the segment interesting for occupiers as well as investors.

Figure 3: Growth of Office Stock in Chennai

GROWTH OF STOCK (million sq ft)
70 60 50 40 0 0 10 0 4Q01 4Q0 4Q0 4Q04 4Q05 10 msf in 4Q05 1 quarters 4Q06 4Q07 4Q08 1 quarters 4Q09 4Q10 4Q11 4Q1 4Q1 4Q14 4Q15 0 msf in 1Q09 50 msf in Q1 60 msf in 4Q15

QUARTERLY SUPPLY (million sq ft) - Four Quarter Moving Average

4.0 .5 .0 .5 .0 1.5 1.0 0.5 Q01 Q0 Q0 Q04 Q05 Q06 Q07 Q08 Q09 Q10 Q11 Rate of supply will fall as projects currently under initial stages of construction get delayed to 01-014 Rate of supply peaked @10 msf per year in 008

VACANCY (%)
5% 0% 5% 0% 15% 10% 5% 0% 4Q01 4Q0 4Q0 4Q04 4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q1 4Q1 4Q14 4Q15 Despite high headline vacancy, projects near the city have high occupancy levels Vacancy has risen due to projects at farther locations becoming operational

Real Estate Intelligence Service (Jones Lang LaSalle), Q11

5 Chennai Real Estate A Closer Look

Despite High Headline Vacancy, Locations Near the City are Largely Occupied
2011 has ushered in renewed interest in Non IT office space in Chennai - especially from firms wishing to relocate their offices to better grade buildings. The expected fresh supply of Non IT office space should witness active absorption at the right rentals. There will be greater demand for investment grade office spaces

within the city, since there is a severe dearth of high quality office buildings in the central areas. In terms of IT office space, OMR remains a preferred destination, with most of the absorption expected before the toll plaza because of easier and more cost-effective commuting. Despite a current high headline vacancy of 1.6% at a city level, projects that are nearer to the city have low vacancies due to interest from occupiers (Figure ).

Majority of Office Demand from IT/ITES and Manufacturing/Industrial sectors

With Chennai being a major IT and Industrial hub, nearly 60%-70% of the demand for office space in Chennai is contributed by the IT/ITES and Manufacturing sectors (Figure 4). With an expected slowdown in the North American and European countries, the demand from IT industry, whose export revenues are highly dependent on these economies, will witness a slowdown during H11-01. However, over a longer term, Chennai office market is expected to absorb nearly 4 million sq ft of office space annually till 2015.

Figure 4: Sector-wise Contribution to Office Leasing Transactions in Chennai

100% 11% 5% 7% 10% 90% 80% 70% 60% 50% 71% 70% 67% 40% 0% 0% 10% 0% 005 006 007 008 009 010 % 15% 5% Others 4% 1% 9% 14% Consulting Manufacturing/ Industry 60% BFSI IT/ITES

0%

Source: Real Estate Intelligence Service (Jones Lang LaSalle)

Attractive Rents to Drive Demand for Office Space at Suburban Locations

Rents in office properties in Chennai have largely remained stable for the past 6-7 quarters, but have yet to move into rents rising barring some locations in the Secondary Business District, which have already shown signs of improvement (Figure 5). Average gross rents across the three sub-markets of Chennai were observed to be in the below ranges. Sub-Market Rental Value Range (INR Per sq ft per month) CBD SBD PBD 65 85 45 55 0 40

Figure 5: Office Property Clock

2Q08

NCR Delhi Mumbai Kolkata Bangalore GROWTH Chennai SLOWING Hyderabad

48%

56%

2Q09
VALUE DECLINING Hyderabad & Kolkata Chennai Pune Bangalore NCR Delhi Mumbai

VALUE RISING

DECLINE SLOWING

2Q11

Bangalore Kolkata Mumbai Pune NCR Delhi Chennai Hyderabad

Attractive rentals are expected to drive demand for office real estate from cost sensitive occupiers in projects that are located after the toll plaza on the Old Mahabalipuram Road (OMR). However, the office properties that are located before the toll plaza have witnessed healthy traction from occupiers leading to a firming up of rental values in the near to medium term. Overall, the vacancy levels in PBD are expected to plateau, and rents will remain favourable to tenants during 011-01 (Figure 6).

Source: Real Estate Intelligence Service (JLL), Q11

Figure 6: Occupier Traffic Lights

1H11 CBD SBD PBD
Landlord Favouring Balanced Market Tenant Favouring Source: Real Estate Intelligence Service (JLL), Q11

H11

1H1

H1

1H1

H1

6 Chennai Real Estate A Closer Look

Trends in Commercial Retail Space in Chennai

Established High Street Retailing Remains a Focus for Retailers
High Streets as a retail format formed the first wave of retail revolution in Chennai. With increasing globalization and cross cultural migration from within India owing to rapid expansion of businesses across regions and territories, the consumption pattern of the citys working class went through a significant metamorphosis. With the changing consumer landscape of the city, came the second wave of retail revolution which is the penetration of organized retail to cater to the demand of Gen-Y or the millennial generation. Traditionally, top retailers in India leveraged on the footfall advantage of a mall to target the impulse purchasers and the conversion advantage of a high street for repeat purchasers. The Chennai retail market is no exception to the above-mentioned phenomenon. Chennais high streets continue to remain as a favourite location for retailers as conversion rates in high streets are higher compared with those in malls. The neighbourhood of premium residential catchments, ample space for a hassle-free car park and proximity to the city centre are the key drivers of demand for high-end high streets. Of the above-mentioned locations, the high streets of Khadar Nawaz Khan Road (KNK Road) and Wallace Garden Road have emerged as important retail destinations for global luxury, fashion and premium brands. Figure 7: Gross Rents at High Street Locations of Chennai
160 140 10 100 80 60 40 0 0

KNK Road

Anna Nagar (nd Avenue)

R.K. Salai

Besant Nagar

T. Nagar

Adayar

Ashok Nagar

Anna Salai

Alooarpet

O.M.R.

Puraswalkam

Kilpauk

Vadapalaril

Geams Road

Nungambakkam

CBD

SBD

PBD

Source: Real Estate Intelligence Service (JLL), Q11

term outlook of the city remains healthy from a retail stand point; however, supply of quality retail malls remains a challenge. Apart from the prime city which has already seen a healthy penetration of malls, the suburban area of Chennai is witnessing significant residential activity, with nearly 71,000 residential units under construction and likely to enter the market in the next three to four years. This indicates the potential of Chennais suburbs to emerge as an attractive retail destination. Bigger residential catchments in the suburban areas combined with more reasonable rentals compared to those in the prime city are expected to act as key driving forces for retailers to increase their presence in the suburban precinct of Chennai in the long term. The additional mall supply is likely to be launched with high occupancy levels resulting in overall stability in the mall vacancy rate in the city. With more mall completions anticipated over the next three years, the citys mall footprint is expected to rise annually from 011 onwards. This trend is supported by the entry of malls by a few renowned developers such as Prestige Group, Phoenix Market City, PS Srijan and Marg Constructions (Figure 8). This growth will be aided by falling vacancy, growth of office and residential markets in suburban Chennai and development of quality retail malls.

Growth of Organised Retail Malls to Propel Further Growth

Over the years, Chennai retail landscape has gone through a rapid retail transformation with the organized retail coming in to the foray. Albeit at a lag, the Chennai city is fast catching up with the much mature retail markets of Mumbai, Delhi and Bangalore. With a cosmopolitan outlook, the citys organized retail real estate market has improved in the recent times with the penetration of major foreign as well as domestic retailers and mall developers. The near Figure 8: Major Operational and Upcoming Retail Malls in Chennai
Retail Mall City Center Mall, Chennai Ampa Mall Express Avenue Mall Ramee Mall Coramandel Plaza Forum, Chennai Market City, Chennai Marg Junction Mall The Grande Location RK Salai Nelson Manickam Road Whites Road Mount Road OMR Vadapalani Velachery OMR Velachery

Year of Completion 006 009 010 011 011 01 014 01 01

Status Completed Completed Completed Completed Completed Under Construction Under Construction Under Construction Under Construction

Developer ETA Star Properties Ampa Housing Development Express Infrastructure Ramee Group Surya Vardhan Estate Prestige Group Kshitij and Phoenix Mills Marg Constructions PS Group and Srijan

Source: Real Estate Intelligence Service (JLL), Q11

Velacherry

Mylapore

7 Chennai Real Estate A Closer Look

Trends in Residential Space in Chennai

Residential Market in Chennai Dominated By Mid-End and Value Housing Segments
While Chennai city is home for Mid-to-High end projects, with geographic expansion of the citys suburbs and increasing IT/ITES population across varied income levels resulted in opportunities in midend and value housing projects. However, residential supply in Chennai is skewed towards value and mid-end housing as the high-end projects have a relatively lesser representation at a city level. The premium pockets of Central Chennai and Off-Central Chennai predominantly comprise of high-end offerings as compared to the suburbs of Chennai that offers a good combination of high, mid and value residential projects. The representation of value housing projects is notable in all the four suburbs of Chennai, which are viewed as opportunity from both an investor as well as end-user perspective. However, as new projects are getting launched at higher prices, the share of value housing segment in new launches is reducing and has declined from 97% in Q09 to 54% in Q11 (Figure 9). Figure 9: New Launches and Absorption Rate of Residential Units in Chennai by Segments
100% Number of Units Launched / Absorbed 90% 80% 70% 60% 50% 40% 0% 0% 10% 0% Q09 Q09 4Q09 1Q10 Q10 Q10 4Q10 1Q11 Q11 45% 40% 5% Absorption Rate (%) Q-o-Q Change (%) 0% 5% 0% 15% 10% 5% 0%

New Launches-High End Absorption Rate-High End

New Launches-Mid End Absorption Rate-Mid End

New Launches-Value Segment Absorption Rate-Value Segment

Source: Real Estate Intelligence Service (JLL), Q11 Note: 1. Projects that have residential units priced predominantly in the range of INR 40-60 Lakhs are categorised as the Mid-End Segment in Chennai; Projects priced at less than INR 40 Lakhs are categorised as the Value housing segment 2. Absorption rate of residential units in a particular quarter is defined as the ratio of residential sales and inventory.

Marked as Years of Comeback, 2009 and 2010 Witnessed Healthy Absorption With Gradual Capital Value Growth
The absorption rate which is an indicator that represents the sale velocity in the market was observed to have peaked during Q10 for mid-end and value housing segments. From a low of less than 0% during Q09, the absorption rates in mid and value housing were observed to be above 50%-mark by Q10. Due to the wait and watch strategy followed by the buyers in the residential market, the absorption rate primarily in mid-segment has tapered in the past - quarters. On the other hand, the value housing segment has shown a positive absorption trend during 1H011. It is interesting note that, since the economic recovery, the capital values recorded a trend reversal to witness healthy q-o-q growth between Q09 and 1Q11 (Figure 10). Post recovery, the average sizes of apartment configurations were also observed to have improved with a typical -BHK dwelling unit being marketed with an average saleable area of 1,400 sq ft or above.
During

Figure 10: Change in Capital Value Index by Segments

110 105 Base Capital Values Index (1Q08 = 100) 100 95 90 85 80 75 70 16% 1% 8% 4% 0%

-4% -8%

-1% -16%

1Q08 Q08 Q08 4Q08 1Q09 Q09 Q09 4Q09 1Q10 Q10 Q10 4Q10 1Q11 Q11 QoQ Change-Mid End CV Index-Mid End

QoQ Change-High End CV Index-High End

QoQ Change-Value Segment CV Index-Value Segment

Source: Real Estate Intelligence Service (JLL), Q11

the slowdown (Q08 1Q09), a typical  BHK unit was marketed with an average saleable area of 1,00 sq ft as opposed to 1,400 sq ft during 1H11

8 Chennai Real Estate A Closer Look

Authors
Balakumaran GS Assistant Manager, Research and REIS balakumaran.gs@ap.jll.com +91 44 095 1000 Balakumaran G S joined the Jones Lang LaSalle Research team in January 011 and is responsible for the Real Estate Intelligence Service (REIS) publications. Based in Chennai, he contributes to research deliverables on office, retail and residential real estate markets in the country. Prior to joining the firm, Balakumaran worked in various profiles as an entrepreneur and in new business initiatives in the education industry for over four years in India. He holds an Engineering degree from Bharathidasan University and an MBA from IIPM, Delhi. He also holds a GNIIT Certification in Systems Management from NIIT, Chennai. Hariharan Ganesan Manager, Research and REIS hariharan.ganesan@ap.jll.com +91  07 1500 Hariharan Ganesan joined the Jones Lang LaSalle India in April 008 and is responsible for managing the quarterly research offering - Real Estate Intelligence Service (REIS) publications. Based in Mumbai, he contributes to bespoke research publications on office, retail and residential real estate markets. Prior to joining the Mumbai team, he managed research operations for Jones Lang LaSalle based out of Chennai region and has worked on multiple topical white papers, property market digests and bespoke research projects spanning diverse geographies within India. With over five years of research and marketing experience, Hariharan holds a dual degree from Bits Pilani and an MBA from IIPM, Delhi. Himadri Mayank Assistant Vice President, Research & REIS himadri.mayank@ap.jll.com +91  07 1500 Himadri Mayank manages the operations of Jones Lang LaSalles research offering - Real Estate Intelligence Service (REIS), and is responsible for the teams outputs, including research reports such as topical whitepapers. Since joining the firm in 2008, he has delivered several bespoke research projects in the office, retail and residential sectors based on specific client requirements. Himadri holds a bachelors degree from Indian Institute of Technology (IIT), Kharagpur and has over four years of experience in the field of real estate. He is pursuing the Chartered Financial Analyst (CFA) program offered by CFA Institute, Charlottesville and has passed the 2011 Level III CFA exam. He is the life member of Association for Promotion of Creative Learning, a not-for-profit organisation which aims to promote education for underprivileged through creativity and creative learning in society. Ashutosh Limaye Head Research and REIS ashutosh.limaye@ap.jll.com +91  07 1500 Ashutosh Limaye is responsible for overseeing research and REIS business of JLL. He is also responsible for effective business development, selection, grooming and growth of professionals in the research division. He has 14 years of experience, including one and half years of post graduation in planning with specialization in Urban Planning. His contributions include real estate market intelligence and forecasting, formulations of economic and physical plans, assessments of policies, legislations and regulatory mechanisms for delivery of infrastructure services, study of urban governance initiatives for urban management programmes, identification of appropriate modes of private sector participation in infrastructure delivery for large-scale infrastructure and township projects in the urban context, financial cost-benefit analyses, project formulation and appraisals, and urban land management.

About Jones Lang LaSalle

Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 010 global revenue of more than USD .9 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.8 billion square feet worldwide. LaSalle Investment Management, the companys investment management business, is one of the worlds largest and most diverse in real estate with USD 45. billion of assets under management. Jones Lang LaSalle has over 50 years of experience in Asia Pacific, with over 20,800 employees operating in 77 offices in 13 countries across the region. The firm was named the Best Property Consultancy in Asia Pacific at The Asia Pacific Property Awards 2011 in association with Bloomberg Television. For further information, please visit our website, www.ap.joneslanglasalle.com

About Jones Lang LaSalle India

Jones Lang LaSalle is Indias premiere and largest professional services firm specializing in real estate. With an extensive geographic footprint across eleven cities (Ahmedabad, Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 4000, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, analytics, consultancy, transactions, project and development services, integrated facility management, property and asset management, sustainability, warehousing and logistics, capital markets, residential, hotels, health care, senior living, education and retail advisory. For further information, please visit www.joneslanglasalle.co.in

Real Estate Intelligence Service (REIS) India is a subscription based research service designed to provide you with cutting

edge insights into Indias diverse and challenging real estate markets through collation, analysis and forecasts of property market indicators and trends across all major Indian markets across various real estate asset classes - office, retail, residential. REIS empowers you with consistent and complete market data and analyses for all real estate indicators by specific micro markets. It is supplemented by value added services including client briefings, presentations and rapid market updates. For more details, contact, Ashutosh Limaye - ashutosh.limaye@ap.jll.com

For more details, contact Ashutosh Limaye Head - Research and REIS ashutosh.limaye@ap.jll.com +91  07 1500 Himadri Mayank Assistant Vice President, Research & REIS himadri.mayank@ap.jll.com +91  07 1500

COPYRIGHT JONES LANG LASALLE All rights reserved. No part of this publication may be published without prior written permission from Jones Lang LaSalle. The information in this publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of the whole or any part. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process of making forward projections involves assumptions regarding numerous variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome, and we draw your attention to this factor.