For the first time in five years commercial rentals in Chennai may drop by around 15% this year because of over building by the developers. While the demand in the city is for about 5.5 million sq.ft, nearly 9 million sq.ft of new space will be ready by the end of this year.

In terms of supply the city is ranked third behind Bangalore (19%) and Hyderabad (15%) but is ahead of both Mumbai (13%) and NCR (12%). Reports estimate that approximately 30 million sq.ft of office space is entering the market nationally each year. A research report estimates that nearly 14% of the 103 million sq.ft of new supply coming up by 2008 will be in Chennai.

According to the industry experts, the worst affected will be the properties that are along the Old Mahabalipuram Road, which connect Chennai with Mahabalipuram and runs for about 45 kilometers. This stretch is the site of many buildings aimed specifically at the information technology sector. Of the estimated 9 -11 million sq.ft of office space that is nearing completion in Chennai almost 60% is in this stretch only.

As a result of this overbuilding, it is anticipated that almost two to four million sq.ft of the commercial space will have no immediate takers. The comparatively new and small builders will be the worse affected.
Until now with growing demand from IT and ITES companies, prices of office rentals in Chennai have nearly doubled in some parts of the city over the last three-four years. On an average prices have risen between 30% and 80% on an average. But with this over building prices and rentals are estimated to fall by almost 30%.

Real estate watchers are looking forward to some more actions in this sector.
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