When the floods hit Chennai, power supply to the city was affected with several IT firms being left in the dark for days. Major business hubs such as Mahindra World City, Olympia Tech Park and DLF IT Park were closed while other companies scrambled to maintain operations. The havoc caused many to wonder if Chennai’s reputation as an IT hub would be damaged. The good news is that the city continues to be an IT darling, but only just. Here’s why.

Demand for office space has never been higher

Nearly six months since the floods, IT and ITES firms are converging on Chennai to either setup shop or expand their existing offices. Data shows that demand for office space has grown from 6% in 2014 to a whopping 26% in 2015. So much so that the exiting supply of Grade ‘A’ office space is not able to keep up. Experts predict that the existing supply of office space will only last until the end of the year

However quality office space is limited

While demand is high, much of the existing supply of office space are not in regions which IT and ITES companies consider prime. A survey of local real estate developers showed that areas like Guindy, Poonamalee High Road, Taramani, Sholinganallur and other pre-toll areas along the OMR are the most preferred IT hubs, but there is hardly any quality office space here.

This has caused rentals to soar

The lack of quality supply is pushing office rentals through the roof. Areas like the Ramanujan IT Park and Ascendas have seen rents increase by 10% to 12%. This is a reason to worry. If office space in Chennai becomes too expensive, companies may start looking at other metros such as Hyderabad and Pune, where rents are relatively stable.

But developers are rushing to catch up

Builder lobbies such as the Confederation of Real Estate Developers’ Association of India (CREDAI) are urging its members to build more office stock. One tactic being used is to build smaller base office spaces in the heart of the city to act as a company’s headquarters while building massive complexes on the outskirts in areas like the OMR to cater to backend operations and other manpower-heavy functions. This has the added benefit of giving employees access to more affordable residential options in the suburbs.

And now there is hope

The rush to build new office spaces has caused IT & ITES companies to be optimistic about Chennai once again. Several major office space hubs are coming up in Pallavaram-Thoraipakkam, in Ramapuram by the ASV Group and the Raheja Group and the proposed World Trade Centre by Brigade Group. Once these are completed, quality office supply will increase, rentals should stabilise and Chennai will continue to remain an IT favourite.

Reporter : Smitha TK, NDTV
Web Editor : Nikhil Narayan Sivadas, NDTV