Chennai Emerges as Tech Hub and Preferred Office Destination for Global Companies

Chennai, the southern city of India, is gaining popularity among global companies as an attractive destination for office expansion. According to a report by CBRE South Asia Pvt. Ltd., global firms account for more than 50% of the overall office leasing in Chennai for the past six years. This trend is expected to continue in the coming years, highlighting Chennai’s emergence as a preferred office location.

Chennai’s Appeal for Global Companies

There are several reasons why global firms are choosing Chennai for their office spaces. One key factor is the presence of a vast talent pool, with a high number of colleges and universities offering STEM courses. This has enabled the establishment of Global Capability Centers (GCCs) in Chennai for various companies. Additionally, Chennai’s thriving manufacturing capabilities and the availability of quality office space at competitive rentals have further contributed to its appeal among global firms.

Engineering & Manufacturing Sector Dominates Leasing Activity

The report highlights that the Engineering & Manufacturing (E&M) sector has led the office leasing activity in Chennai for the past three years. American semiconductor manufacturing firms, EMEA-based oil & gas companies, and machinery manufacturers have been the major contributors to this leasing activity. In the BFSI sector, American financial services and investment firms, followed by domestic banks, dominate the office leasing market. The implementation of incentives and policies aimed at the semiconductor and advanced electronics sector is expected to further boost leasing activity in the E&M industry. This has resulted in an increase in very large-sized office deals in recent years.

Chennai’s Office Market Overview

In 2023, American companies accounted for 46% of the overall office space absorption in Chennai, followed by domestic firms at 34%. The E&M sector led the absorption with a 28% share, followed by the BFSI sector with a 22% share. Chennai has emerged as the third-highest office absorption market in India, alongside cities like Delhi-NCR, Mumbai, Bangalore, and Hyderabad. In 2023, the city witnessed its highest-ever leasing activity, with a total absorption of 10.0 million sq. ft. and a supply of 6.4 million sq. ft. Chennai represents 10% of India’s overall commercial office stock, with 38% of the office space being green certified.

Growth in Office Developments and Infrastructure

Chennai has seen the emergence of campus-style modern office developments, driven by the demand from global and Indian firms. In 2023, there were several new office space options available to occupiers, enhancing absorption. The city’s well-distributed office activity can be attributed to strong occupier confidence and an integrated public transportation system. OMR Zone 1 and Zone 2 continue to be the most active micro-markets in Chennai, with the average size of newly completed developments reaching 490,000 sq. ft. in 2023. The average deal size also experienced a substantial increase during this period. Key developers such as DLF, Tata Realty and Infrastructure (TRIL), Xander Group, CapitaLand, and ETL Infra lead the office stock in Chennai. Several large-scale office developments exceeding one million sq. ft. have been unveiled in key micro-markets, demonstrating the city’s growth potential.

Government Support for Real Estate Growth

Chennai’s real estate market has witnessed exponential growth, thanks to sector-specific policies implemented by the government. These initiatives have attracted investments and jobs, with industries like engineering & manufacturing, fintech, IT, aerospace, and electronics experiencing substantial growth. Chennai’s success in these sectors has positioned the city as a significant contributor to India’s overall office market.

The Outlook for Chennai’s Office Real Estate

Chennai’s appeal as an investment destination for manufacturing firms, both domestic and global, is expected to drive innovation and technological advancements. The continued adoption of innovative technologies, such as Artificial Intelligence, SaaS, Big Data, and IoT, positions the city at the forefront of evolving trends. The growth of GCCs in the E&M and BFSI sectors is further expected to reshape Chennai’s office real estate momentum. In summary, Chennai’s remarkable growth in office leasing by global firms, particularly in the E&M and BFSI sectors, reinforces its position as a key player in the Indian office market. The city’s attractive attributes, including a skilled workforce, thriving manufacturing capabilities, and well-designed office spaces, make it an enticing choice for expanding businesses. With the government’s support and the ongoing development of modern infrastructure, Chennai is poised for further success in the coming years.

Sumit Mondal Content Analyst at Square Yards
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