CapitaLand to Invest INR 10.5B in Chennai Tech Park Despite Softer Office Demand 

CapitaLand is investing an initial INR 10.5 billion ($140.2 million) to build the first phase of a new IT park in Chennai, reflecting the Singapore-based real estate giant’s optimism that demand for office space will rebound despite a Covid-19 driven slump across India’s major cities.

The Singapore government-linked developer announced Tuesday it will proceed with the project, its third suburban office development in the city, dubbed International Tech Park Chennai, Radial Road, in a virtual ground-breaking ceremony held the same week that Blackstone sold out the IPO of Mindspace Business Parks REIT, raising an estimated INR 4.5 billion. The amount committed by CapitaLand was revealed by India’s Economic Times.

The blue-chip builder is adding to its portfolio of seven properties in the capital of southern India’s Tamil Nadu after Blackstone’s second successful listing of an Indian office trust and with Canada’s Brookfield expected to launch its own Indian office REIT IPO later this year.

Adding South India Portfolio

CapitaLand’s ITPC will be built in two phases on a 23.3 acre (94,291 square meter) site on Chennai’s Radial Road, which is about a 23-minute drive from the tech hub’s international airport.

The first phase comprises 2.6 million square feet (241,547 square metres) of Grade A office space and is expected to be completed in 2022. By 2024, when the entire project is finished, the ITPC will span 4.6 million square feet of built area and will include amenities such as restaurants, food courts, a fitness centre, medical clinic, childcare centre and event spaces.

“Chennai is one of our key markets for growth,” said Vinamra Srivastava, CEO for business parks in India at CapitaLand. “It is the most diversified market for us in India and we have invested in IT parks, industrial townships, warehousing and lodging in the city.”

In 2018, a joint venture by Ascendas, which is now part of CapitaLand, purchased a pair of logistics assets in Chennai for around $120 million. The group, which aims to double assets under management in India to S$7 billion by 2024, also operates serviced apartments in the city under its Citadines and Somerset brands.

Investor enthusiasm for Chennai, is fueled in part by the city’s cluster of technology and business service providers.  “Chennai is emerging as a major IT hub of India, second only to Bangalore and has attracted great interest from institutional investors in the commercial office market lately,” said Piyush Gupta, managing director for capital markets and investment services at Colliers India.

Office Leasing Slumps Across India

CapitaLand is breaking ground on the project as the Covid-19 pandemic ravages the commercial property market in India, as it has globally, with demand for office space falling as governments enforce lockdowns and social distancing measures to curb the further spread of the coronavirus. Gross leasing of office space across seven major cities in India declined 36 percent in the first half of 2020, Colliers said in a report earlier this month.

While the market is challenging now, CapitaLand’s Srivastava expressed confidence that, when it is completed, the ITPC will provide IT companies more options for expanding their businesses in Chennai. The company’s existing IT parks in the city — ITPC at Taramani and CyberVale — are both fully occupied.

While Chennai, which is home to Japanese MNCs such as Komatsu and Panasonic, saw office leasing drop by 34 percent during the first half of 2020, that slide was the gentlest among the seven cities surveyed by Colliers, as Hyberabad posted a 62 percent decline and Mumbai reported a 53 percent fall.

Average vacancy across Chennai is expected to climb to about 15 percent by 2024 as about 30 million square feet of fresh supply comes into the market, according to Colliers. Notwithstanding the influx of new buildings, the consultancy expects rents to stay firm thanks in part to the number of tenants which have already pre-committed to some of these projects.

Chennai Attracts Institutional Office Investors

SGX-listed CapitaLand has been actively investing in Chennai, where it currently has logistics and serviced apartment properties, in addition to its IT parks, representing half of its portfolio in the Indian subcontinent. The group also owns and manages a portfolio of commercial assets in Bangalore, Goa, Gurgaon, Hyderabad, Mumbai and Pune.

“We will continue to balance our growth across key markets in India as we look to increase our assets under management in the country,” Srivastava said. “To achieve this, we are investing in developing a strong pipeline of projects and working with potential capital partners to grow our fund management business in India in the next few years.”

Ascendas India Trust, which owns and manages some of CapitaLand’s assets in the country, this week announced that, based on the performance of its 13.1 million square foot portfolio in the first half of 2020, it would be boosting distributions to its unit-holders by 24 percent compared to the same period a year ago.