Chennai 2030: Expanding Horizons

Between The Present & The Future REPORT

CBRE RESEARCH NOVEMBER 2022

Tamil Nadu - A Land of Thriving Opportunities

1.1. Recent Policies Promoting Investment Activity

1.2. Infrastructure Initiatives Driving Economic Development

1.3. The Knowledge Hub of India

1.4. The Sunrise Industries Driving Economic Growth

1.5. Exports Amplifying the State’s Development

Chennai - The Gateway of South India

2.1. Infrastructure Initiatives Reshaping the Skyline of the City

2.2. Chennai - The Epicentre of Tamil Nadu’s Real Estate Activity

Emerging Tier II Real Estate Destinations – A Snapshot

Looking Ahead towards 2030: What does the Future

Hold for Tamil Nadu and Chennai?

Tamil Nadu: A Land of Thriving Opportunities

Figure 1.1. Demographics

GEOGRAPHICAL AREA (2011) 130,060 SQ. KM. URBAN POPULATION (2011) 48%

POPULATION (2011) 72.1 MILLION

POPULATION DENSITY (2011) 555 / SQ. KM.

LITERACY RATE (2011) 80.3%

Key facts about Tamil Nadu compared to other states

in State Health Index, 2019

largest contributor to India's GDP after Maharashtra as of FY 2020-21

in Sustainable Development Goals (SDG) India Index, FY 2020-21

in Public Affairs Index, 2021

in Growth, Innovation & Leadership Index for Economic Development in India, 2019

in Human Development Index, 2017

Tamil Nadu is one of the most industrialised and urbanised economies in south India. The state is the 2nd most significant1 contributor to the country’s GDP and offers several advantages in terms of human capital, industry knowhow, diversified economic base, state-of-the-art infrastructure and favorable investment climate. Additionally, driven by stable governance, adequate policy interventions and structural reforms, the state has emerged as one of the preferred destinations for industries and tech corporates looking to expand their operations in India. These inherent advantages have propelled the state to become home to over 80 Global Fortune 500 companies2 and leading conglomerates. Source: Census of India, 2011; CBRE Research, Q4 2022. 1.

The state contributed 10% (about INR 12,967 billion)3 to India’s GDP in 2020-21 and was among the few states that recorded positive GDP growth of 1.4%, as compared to 2019-20. During the same period, robust growth across key sectors resulted in Tamil Nadu’s per capita income to stand at around INR 276,8154 more than 300% higher than the national average5

Tamil Nadu is also one of the most preferred investment destinations in India, garnering more than 12% of cumulative FDI inflows since 20196. The state attracted investments worth USD 3 billion during FY 2021-22 and ranked 5th in terms of FDI equity inflows in the country7

Figure 1.2: Tamil Nadu’s GDP growth (at constant prices)

Figure 1.3: Tamil Nadu’s share in India’s GDP during 2020-21

states

#2 in State Investment Potential Index, 2018

#5 in terms of attracting Foreign Direct Investments, FY 2021-22

Source: National Statistical Office, MoSPI, GoI, 2021, CBRE Research, Q4 2022.

Figure 1.4: Tamil Nadu’s FDI inflows (FY 2015-16 to FY 2021-22)

Source: National Council of Applied Economic Research, 2018; Department for Promotion of Industry and Internal Trade (DPIIT), GoI, 2022; CBRE Research, Q4 2022. 3. National Statistical Office, MoSPI, GoI, 2021 4. Guidance Tamil Nadu, 2021 5. National Statistical Office, MoSPI, GoI, 2021

DPIIT, GoI, 2022

DPIIT, GoI, 2022

Source: DPIIT, GoI, 2022; CBRE Research, Q4 2022.

Key facts about Tamil Nadu compared to other

The five-pillar economic advantage

Apart from having the natural advantage of being located on the coast of the Bay of Bengal, the state has a well-diversified economic base formed through proactive policy formulation and infrastructure development. In addition, the state’s focus on its education system has built a strong ecosystem of skilled workforce to cater to its economic development. This development was first through its industrial revolution and later through IT and other emerging sectors. The below section highlights this prominence and advantage:

Figure

1.5: Strategic pillars of economic development

Source: CBRE Research, Q4 2022.

Exports Focus sectors Manpower Infrastructure Policy

1.1. Recent Policies Promoting Investment Activity

With an intention to promote investments and create jobs, the GoTN has been proactive in formulating industryspecific policies which have also boosted the state’s real estate dynamics. Key instances are given below:

Table 1.1.1. Key recent policy initiatives impacting Tamil Nadu's real estate landscape*

Policy

Tamil Nadu Life Sciences Promotion Policy, 2022

Tamil Nadu R&D Policy, 2022

Tamil Nadu FinTech Policy, 2021

Tamil Nadu Industrial Policy, 2021

Tamil Nadu Data Centre Policy, 2021

Tamil Nadu Export Promotion Strategy, 2021

Tamil Nadu Electronics Hardware Manufacturing Policy, 2020

Tamil Nadu Aerospace & Defence Industrial Policy, 2019

Tamil Nadu New Integrated Textile Policy, 2019

Tamil Nadu IT Policy, 2018

Tamil Nadu Food Processing Policy, 2018

Land-related incentives Capital subsidy Reimbursement of SGST8 Development in tier II cities

*In a few cases, though the policies do not directly mention about a particular incentive, an indication of indirect initiatives have been considered as a ‘tick’ mark

Source: Industries, Investment Promotion and Commerce Department, GoTN, 2022; Industries Department, GoTN, 2019 & 2021; Information Technology Department, GoTN, 2018 & 2021; Tamil Nadu Investment Promotion Agency, GoTN, 2020 & 2021; Handlooms, Handicrafts, Textiles and Khadi Department, GoTN, 2019; Department of Agricultural Marketing and Agri Business, GoTN, 2018; CBRE Research, Q4 2022.

Source: Confederation of Indian Industry (CII), 2022; Department of Administrative Reforms and Public Grievances, GoI, 2021; CBRE Research, Q4 2022.

Future Cities

1.2. Infrastructure Initiatives Driving Economic Development

Tamil Nadu’s excellent physical infrastructure provides vital support to the state’s economic development. The well-connected transport network also facilitates uninterrupted global and domestic business activities in the state.

Figure 1.2.2. Infrastructure map of Tamil Nadu

4 international airports (Chennai, Coimbatore, Tiruchirappalli and Madurai) and 2 domestic airports (Salem and Thoothukudi)

3 major ports (Chennai, Kamarajar (Ennore) and Thoothukudi)

Highways Cargo Handled

253,510 km of roadways To Andhra Pradesh NH-45 East Coast Road NH-81 NH-38 NH-44

Roadways 17,000 km of National and State HIghways As of 2020, 240 MT per annum cargo handled by Chennai, Kamarajar (Ennore), VOC (Thoothukudi), Kattupalli and Karaikal ports To Karnataka To Kerala To Kerala Kanyakumari

Ranipet Hosur Salem Erode Tiruppur Coimbatore Madurai Tirunelveli Thoothukudi

Chennai

NH-48 NH-44

Cuddalore Tiruchirappalli

NH-83 NH-744

Figure 1.2.1. Key transportation nodes in Tamil Nadu: A snapshot Source: Guidance Tamil Nadu, GoTN, 2022; CBRE Research, Q4 2022. Source: Guidance Tamil Nadu, GoTN, 2022; CBRE Research, Q4 2022.

Ennore Major National Highway Manufacturing Hub International Airport Major Sea Port

Chennai 2030: Expanding Horizons : Between The Present & The Future 7 CBRE RESEARCH ©2022 CBRE, INC.

In addition to the existing infrastructure, the state government is focusing on further enhancing the industrial ecosystem by developing industrial and defence corridors. The focus of these strategic initiatives is to ensure equitable growth across all districts of the state by creating self-sustaining, integrated industrial nodes. These nodes, once developed, would act as catalysts for industrial growth in the coming years.

Going forward, several ongoing infrastructure initiatives are likely to provide an additional impetus to real estate activity in the state. To further propel economic growth, boost investments and accelerate real estate growth, the GoTN announced various infrastructure measures during 2021 and 2022 (refer figure 1.2.3)

Figure 1.2.3. Proposed industrial corridors and expressways in Tamil Nadu

Industrial Corridor

Chennai-Bangalore Industrial Corridor (CBIC)

1 - Ponneri, Tamil Nadu

2 - Krishnapatnam, Andhra Pradesh

3 - Tumakuru, Karnataka

Chennai–Kanyakumari Industrial Corridor (CKIC)

4 - Chennai, Tamil Nadu 5 - Kanyakumari

Kochi–Coimbatore-Bangalore Industrial Corridor (KBIC) 20 - Kochi, Kerala 21 - Coimbatore, Tamil Nadu 22 - Bangalore, Karnataka

Coimbatore

Expansion of ECR Road

4 - Chennai, Tamil Nadu 23 - Pondicherry (UT)

Chennai-Bangalore Expressway

4 - Chennai, Tamil Nadu 22 - Bangalore, Karnataka

Source: CBRE Research, Q4 2022.

Tiruchirappalli

I. Madurai–Dindigul-Virudhunagar-Theni 6 - Madurai

7 - Dindigul 8 - Virudhunagar 9 - Theni

Key Industrial Nodes in Tamil Nadu Chennai Salem

II. Thoothukudi-Tirunelveli 10 - Thoothukudi 11 - Tirunelveli

III. Ramanathapuram-Cuddalore-Nagapattinam 12 - Ramanathapuram 13 - Cuddalore 14 - Nagapattinam

IV. Tiruchirappalli-Pudukottai-Sivagangai 15 - Tiruchirappalli 16 - Pudukottai 17 - Sivagangai

V. Ariyalur-Perambalur 18 - Ariyalur 19 - Perambalur

Hosur

Defence Industrial Corridor in Tamil Nadu

1.3. The Knowledge Hub of India

With a literacy rate of 80.3%14 Tamil Nadu made huge progress in the education sector especially in the field of technical education. The state is building a competitive and competent workforce that plays a significant role in India’s economic growth. In 2022, Tamil Nadu continued to lead the National Institutional Ranking Framework (NIRF) rankings for higher education across various disciplines in the country. Today, it has a robust skill development ecosystem due to the various initiatives taken by the state government including the establishment of Tamil Nadu Skill Development Corporation (TNSDC).

Figure 1.3.1. Tamil Nadu's human resource engine (2022)

Figure 1.3.2. Abundant availability of talent drives Tamil Nadu’s existing strong industrial base

Parameter Statistics

Universities 59 Colleges 2,639 Engineering colleges 525+ Arts and science colleges 455+ Standalone institutes 860

Central and state research institutes 200

Central universities 2 Institutes of national importance 7 Yearly graduates 5 lakh+ Yearly engineering graduates 2 lakh+

NIRF rankings, 2022

Share in the overall industrial workforce of India, the highest in the country

IIT Madras ranked 1st among the top 100 NIRF 21 of India’s top 100 universities are in Tamil Nadu 32 of India’s top 100 colleges are located in the state 16 of the country’s top 100 engineering colleges are in Tamil Nadu

Source: Tamil Nadu R&D Policy, 2022; Guidance Tamil Nadu, GoTN, 2022; NIRF, Ministry of Education, GoI, 2022; CBRE Research, Q4 2022.

Share in the overall industrial women workforce of India, the highest in the country

Share in the tech workforce of India, the 3rd highest in the country

Source: Guidance Tamil Nadu, GoTN, 2022; CBRE Research, Q4 2022.

in number of factories and industrial workers in India, 2022

in annual turnout of skilled manpower in India, 2022

in India Innovation Index, 2021

in School Education and Quality Index, 2019

Source: Guidance Tamil Nadu, GoTN, 2022; NITI Aayog, 2019 & 2021; CBRE Research, Q4 2022.

Key facts about Tamil Nadu compared to other states 14. Census of India, 2011

1.4. The Sunrise Industries Driving Economic Growth

Tamil Nadu has a well-established manufacturing ecosystem across tier I and II cities as it is one of the key states in terms of industrial performance in India. The state is home to more than 37,000 factories*, the highest in the country (as of 2018). The figure below highlights the established and emerging industrial sectors of the state:

Figure 1.4.2. The sunrise sectors of the state

•

Renewable Energy

FinTech

•

•

•

•

•

•

•

•

•

•

•

1.5. Exports Amplifying the State’s Development

Sector

Sectors which create a comparative export advantage for the state

A vast coastline, excellent maritime connectivity and 25 seaports have driven the state to become one of the leading contributors to the country’s exports. The state boasts of a diversified export basket in various sectors such as automobile & auto components, machinery & instruments, electronic hardware, software, readymade garments & accessories, yarns, fabrics and leather products. The value of merchandise exports from Tamil Nadu stood at INR 11.6 lakh crore (USD 168.5 billion) between FY 2015-16 and FY 2020-2118 To ensure more equitable industrial development across the state, the government has released a detailed policy with an aim to increase Tamil Nadu’s exports from USD 26 billion in 2021 to USD 100 billion by 2030.

Road vehicles 1 37% Apparels & clothing 1 45% Footwear 1 44% Machinery 2 18% Electrical machinery & electronics 3 16% Key facts about Tamil Nadu compared to other states

Chennai: The Gateway of South India

Chennai, the capital city of Tamil Nadu, is situated on the southeast coast of India. With a population of around five million20, it is the most densely populated city in Tamil Nadu and India’s fourth most populous urban agglomeration21. Its strategic location, robust infrastructure, rich cultural heritage and bustling economy have undoubtedly made it a cosmopolitan city that draws people from across India and the world. According to ‘Ease of Living Index, 2020’ released by the Ministry of Housing and Urban Affairs, Chennai ranks fourth in the country. It topped the Quality of Life pillar which evaluates the city on varied parameters such as health, education, mobility, recreation and safety. With a diversified economy and growing global investments, the city has enticed expats from various parts of the world. A majority of the expats in Chennai are from countries such as the US, UK, Australia, Japan, South Korea, Taiwan, Singapore, etc.

Figure 2.1. Expatriates in Chennai

3rd LARGEST EXPAT POPULATION IN INDIA AFTER MUMBAI AND DELHI

~0.1 MN ESTIMATED EXPAT POPULATION IN CHENNAI

4% SHARE OF EXPATS IN CHENNAI’S MIGRANT POPULATION

Figure 2.2. Economic activities that contribute to Chennai's GDP – 2022 E

Manufacturing Trade, transport & storage Business services

Source: Oxford Economics, 2022; CBRE Research, Q4 2022.

India’s largest automobile cluster with an annual installed capacity of 1.71 million units

2nd largest electronics manufacturing hub in India

Source: World Population Review, 2022; CBRE Research, Q4 2022

Multifarious economic activity

The city has made rapid strides in pursuing economic development over time, so much so that it has evolved into an eminent commercial and industrial centre in India. In 2022, it was classified as a global city by Globalization and World Cities Research Network, with a ranking of Beta22 based on the extent of global reach and financial influence. Chennai’s economic base is anchored in its strong manufacturing sector, followed by trade, transport & storage, business / public services, information & communication, etc.

SaaS capital of India; presence of 36+ FinTech start-ups

India’s 2nd largest cable landing city with six undersea cable landing stations

2nd most competitive electronic FDI destination globally

Census of India, 2011

Guidance Tamil Nadu, GoTN, 2022

Globalization and World Cities Research Network, 2022

Source: Guidance TN, GoTN, 2022; CBRE Research, Q4 2022.

2.2. Chennai - The Epicentre of Tamil Nadu’s Real Estate Activity

Given the diversified economic base, the demand for real estate across asset types has grown rapidly over the years. The city was one of the first to boost the tech sector in India – with the completion of TIDEL Park (along Old Mahabalipuram Road / OMR) in 2000.

Since early 2000, the state actively promoted OMR as the designated ‘IT Corridor’ of Chennai. Apart from state-designated flagship projects along this corridor, private developers also established several IT parks and SEZ developments over the past two decades. The latter came up mainly due to the easy availability of large land parcels at competitive rates, a strong talent base, relaxations in Floor Space Index (FSI), swift approval processes, etc.

The growth of manufacturing and IT / ITeS sectors has led to increasing migration of talent towards the city over the past few years. The resultant rise in the city’s population and expanding urban sprawl thus drove residential demand, especially in the suburban and peripheral locations of South and West Chennai.

Office: Powered by the IT / ITeS sector

Organised commercial real estate traditionally was concentrated in the regions surrounding the seaport and gradually expanded owing to the organic growth of the city, leading to the development of Central Chennai as a prominent commercial / retail hub.

The existing Central Business District (CBD) of Chennai includes locations such as Anna Salai, Nungambakkam High Road, Dr. Radhakrishnan Salai, etc. Owing to limited land availability in these highly developed locations, there is now restricted scope for new supply addition. Consequently, office developments in this micro-market command a significant premium in rentals as well as capital values owing to their strategic location, improved social / physical infrastructure, superior connectivity and business image.

The limited availability of investment-grade space within CBD has resulted in a spillover of corporate occupier demand from the central areas of the city towards locations such as MRC Nagar, Adyar, Vadapalani and Guindy. These locations are categorized as the Off Central Business District (Off CBD), encompassing locations within the city limits but outside CBD.

The suburban and peripheral areas include micro-markets such as OMR and Mount Poonamallee High Road (MPH Road) that are located at a considerable distance from the city centre. The availability of large-sized land parcels at competitive capital values in the suburban and peripheral locations of the city, coupled with the growth of the IT / ITeS industry over the last two decades, has led to a shift in commercial activity to CBD and Off CBD. This has resulted in the extensive growth of commercial office space in these suburban / peripheral micro-markets characterized by large-sized IT parks and SEZs.

The continuous expansion of IT / ITeS companies in the city’s suburban / peripheral locations resulted in the sector garnering a consistent annual share of about 50% in total space take-up since 2010. This space take-up, driven by the entry and expansion of various MNCs, also kept pace with supply addition in the city. As a result, the total office stock in Chennai almost doubled over the last decade, crossing 79 million sq. ft. by the end of Q3 2022.

The micro-markets along the OMR have been the most active office locations in the city, especially the initial stretch between Madhya Kailash Junction and Perungudi Toll (OMR Zone 1), which played a pivotal role in shaping the office leasing dynamics in Chennai. Proximity to CBD, presence of premium office developments, availability of large-sized floor plates and the government’s promotion of this stretch as an IT corridor were the factors driving the demand in this micro-market.

The second stretch of OMR (OMR Zone 2) covering locations such as Thoraipakkam, Pallikaranai, Karapakkam, Sholinganallur and the Pallavaram-Thoraipakkam Road is characterized by large-sized IT developments and SEZs. Competitive rentals, in comparison with OMR Zone 1, have led to increased occupier interest towards this micro-market over the last few years. The third and emerging stretch of OMR (OMR Zone 3) also consists of numerous IT parks and SEZs, along with IT campuses, covering locations such as Navalur, Egattur, Siruseri, Semmencherry, Padur and Kelambakkam.

While the concentration of the IT / ITeS sector activity is along OMR, a few other locations such as Ambattur and GST Road have also emerged as prominent IT hubs over the past 7-8 years, thereby expanding the spread of Peripheral Business District (PBD).

In West Chennai, Mount Poonamallee High Road (MPH Road) emerged as a preferred office hub over the past decade due to its proximity to Guindy in Off-CBD, availability of quality office space and adequate social and physical infrastructure.

While OMR Zone 1 and MPH Road are expected to continue to garner occupier interest in the coming years, micro-markets such as OMR Zone 2 and OMR Zone 3 are also likely to dominate leasing activity in the next few years.

Figure 2.2.1. : Overview of supply-demand trends

(in million sq. ft.)

5.0

4.0

3.0

2.0

1.0

0.0

6.0 2017 2018 2019 2020 2021 9M 2022

Supply Demand

Source: CBRE Research, Q4 2022.

Residential: Moving towards the suburbs

Traditionally, the city’s residential market has been concentrated across Central Chennai’s dominant locations such as Nungambakkam, Alwarpet, Mylapore, etc., which are primarily characterized by independent houses. With the organic growth of the city, several of these independent houses began to be redeveloped as apartments to accommodate a larger populace.

In the 1990s, residential activity started spreading beyond the established markets with areas such as Anna Nagar, Adyar and Besant Nagar witnessing high activity.

As the urban sprawl continued and capital values in core areas escalated, the peripherals started witnessing increased residential activity. Private developers began to launch group housing projects with standard layouts and specifications in these locations. A majority of this activity shifted from the central to the suburban, and subsequently to the peripheral areas of South and West Chennai.

This shift has also been supported by the growth of the office sector, with increasing IT / ITeS firms in OMR in South Chennai and buoyant industrial activity in Oragadam-Sriperumbudur and surrounding locations in West Chennai. Thus, over the recent years, South and West Chennai have garnered a dominant share in launches as well as sale of housing units.

South Chennai is currently the most active residential market of the city and houses about 60% of its residential stock. Key corridors of South Chennai include OMR (Rajiv Gandhi Salai), GST (Grand Southern Trunk) Road, ECR (East Coast Road) along with other locations such as Velachery, Thiruvanmiyur, Adyar, Pallikaranai, etc. A majority of the residential activity is witnessed across the arterial roads of OMR and GST.

Due to the presence of prominent IT parks and SEZs, the employees working in IT / ITeS companies have mainly contributed to residential demand in South Chennai. West Chennai is a mix of emerging locations such as MPH Road, NH-4 (ChennaiBangalore Highway), Ambattur, etc. and established locations such as Ashok Nagar, Vadapalani, Anna Nagar, etc. along the Jawaharlal Nehru Road (also known as Inner Ring Road). The emergence of the NH-4 industrial corridor and completion of large-sized SEZ and IT developments have spurred residential demand in West Chennai.

Figure 2.2.2.

(No. of units)

14,000

: Overview of supply-demand

12,000

10,000

8,000

6,000

4,000

trends 0

16,000 2017 2018 2019 2020 2021 9M 2022

2,000

Supply Sales

Source: CBRE Research, Q4 2022.

I&L: Expansion on the anvil

Chennai houses multiple industrial parks, mainly in West and North Chennai. Key industrial clusters include Oragadam, Ambattur Industrial Estate, SIDCO Industrial Estate - Thirumudivakkam, Vallam-Vadagal Industrial Park, Sri City etc. Locations such as Sriperambudur and Irungattukotai along NH-4 in West Chennai house manufacturing units of various international players.

Increasing manufacturing activity has led to a rise in demand for warehouses in the city over the past few years. The warehousing stock in Chennai crossed 30 million sq. ft. by Q3 2022, with close to 13 million sq. ft. added in the past three years alone. Western Corridors 1 & 2 include locations such as Sriperumbudur, Oragadam, Vallam, Mappedu, Mannur, Thiruvallur etc. and account for about 60% of the total stock in the city. Northern Corridor, covering locations such as Puzhal, Manali, Red-Hills etc., accounts for about 35% of the total stock.

The warehousing space take-up in Chennai has been primarily driven by the entry and expansion of 3PL, FMCG, auto & ancillary and e-commerce players especially along the Western and Northern Corridors. Driven by better-quality warehouses and increasing space take-up, rental values increased at a CAGR of about 2-7% over the past five years in Western and Northern Corridors.

Figure 2.2.3.: Overview of supply-demand trends

Retail: Expansion towards emerging locations

Traditionally, retail activity in Chennai was concentrated in central locations such as Theagaraya Nagar (T.Nagar), Nungambakkam, etc. – which were characterized by the presence of numerous shopping arcades and standalone retail outlets catering to the needs of various consumer segments. High street locations such as Usman Road & Pondy Bazaar in T.Nagar have been in existence since the 1930s and still remain some of the most sought-after high street destinations. However, as observed across all major cities in India, Chennai has also witnessed heightened demand for quality organized retail space in the last decade. Despite increase in demand, organized retail activity is still at an emerging stage in the city.

Spencer Plaza was amongst the early developments in the organized retail sector; it was completed in 1998 and is located in Central Chennai. Though Chennai was the first city in India to have a retail mall, the city witnessed only moderate development of quality retail space for the next few years. After a significant gap of eight years, the city witnessed its second mall development in ‘City Centre’.

The total organized retail mall space in Chennai city is approximately 6 million sq. ft., comprising of 15 developments. A majority of this supply is located within the Central Chennai region, which is in divergence with the trends witnessed across other metros such as Bangalore and Mumbai wherein majority of the retail mall developments are located in suburban and peripheral locations. The concentration of six malls in Central Chennai was driven by factors such as superior location, accessibility, healthy footfalls and suitable catchment profile. However, going forward, paucity of land parcels in the central region is expected to result in limited supply addition here in the medium term, thereby leading to new mall developments in other growth regions of the city (viz. South and West Chennai).

Figure 2.2.4.: Overview of supply-demand trends

DCs: Preferred investment destination

Chennai has also now emerged as one of the of the fastest growing DC markets in India, next to Mumbai and Bangalore. This is on the back of a substantial cost arbitrage provided by the city’s coastal line which facilitates direct submarine routes, availability of large bandwidth and an increasing presence of domestic IT / ITeS firms. This has led to the city transforming into a top choice for housing a secondary or disaster recovery DC site, boosted by its geographic proximity to Asia’s major cities.

Tamil Nadu is also one of the first states to release state-specific initiatives for the DC segment and build its own dedicated full-fledged ‘Disaster Recovery Centre’. While Chennai already hosts several small- to medium-scale DC facilities, the city also recorded large-sized investments in recent times.

Established DC locations in the city include Ambattur and Siruseri in West and South Chennai, respectively. In recent times, Oragadam in West Chennai has been witnessing growing investor interest and is expected to emerge as a key DC destination in the city.

Figure 2.2.5.: DC supply trends

Emerging Tier II Real Estate Destinations

– A Snapshot

The economic and real estate growth in Tamil Nadu has fast grown beyond Chennai over recent years. Cities such as Coimbatore, Madurai and Trichy are expected to emerge as leading tier II investment destinations in the state, driven by several policy and infrastructure initiatives. Further, a strong local economy, connectivity to other key cities, growth of the IT / ITeS sector and availability of skilled manpower are expected to create new avenues for real estate development in these cities in the coming years.

Table 3.1. Key tier II cities in Tamil Nadu

City Key statistics Key sectors Existing infrastructure

Geographical area – 247 sq. km.

Population – 1.6 million

• Textile and textile machinery manufacturing

Coimbatore

• Automobile

Literacy rate – 84%

• Jewellery manufacturing

• Technology

• Airport – One international airport; second busiest in the state.

• Rail – Second largest railway junction in the state; connects to major cities in Tamil Nadu and other states.

• Road – Three National Highways – NH-47, NH-67, NH-209 and six major arterial roads.

Madurai

Geographical area - 148 sq. km. Population – 1.0 million

Literacy rate – 83%

• Agriculture

• Tourism

• Automobile

• Textile

• Technology

• Airport - One international airport; connects to major Indian cities and select international destinations.

• Rail – One railway junction; connects to major cities in the state.

• Road - Three national highways – NH-45b, NH208, NH-49 and three state highways – SH-32, SH-33 and SH-72.

Tiruchirappalli

Geographical area - 167 sq. km.

Population – 0.9 million

Literacy rate – 83%

• Heavy engineering / machinery / equipment manufacturing

• Retail markets

• Technology

• Airport - One international airport; connects to major Indian cities and select international destinations.

• Rail – One railway junction; connects to major cities in Tamil Nadu and other states.

• Road - Three National Highways – NH-38, NH-83 and NH-81.

Source: Census of India, 2011; GoTN, 2022; CBRE Research, Q4 2022.

Looking Ahead towards 2030: What does the Future Hold for Tamil Nadu and Chennai?

The continued attractiveness of the state as an investment destination in India, particularly for global / domestic manufacturing players, is expected to further push it to the forefront of innovation and technological evolution. This is because companies are increasingly adopting innovative technologies (such as Artificial Intelligence, SaaS, Big Data, Internet of Things, etc.) in their quest to keep pace with the changing times.

In addition, we expect Tamil Nadu’s growth story to percolate to its tier II and tier III cities, on the back of a supportive policy climate and continued infrastructure initiatives. We also expect investor interest in these cities to grow substantially in the future as they look for expansion avenues, thereby safeguarding the state’s position as a premium investment destination in the long run.

Key future growth drivers for Tamil Nadu’s real estate:

Stable political dispensation

Focused policy initiatives

Widening infrastructure base

Availability of a large talent pool

Economic growth backed by tech and manufactrung sector

As mentioned in the above sections, we expect Chennai to sustain long-term investments owing to factors such as unmatched talent availability, excellent physical and social infrastructure, stable governance and sustained policy initiatives. Chennai’s real estate market has leveraged these aforementioned factors, leading to its exponential growth over the past decade. Further, Infrastructure and policy initiatives undertaken by the state government are expected to further improve connectivity between the regions and augment commercial demand.

A rundown on sectoral trends anticipated by 2030 in Chennai

Sector Stock as of Q3 2022 Expected stock growth by 2030 Micro markets / locations expected to witness growth Trends to watch out

Near term - PT Road, MPH Road and OMR Zone 2

Office 79 million sq. ft. ~1.5x growth

Long term - OMR Zone 3, GST Road and ORR

• The adoption of hybrid working is likely to require more sophisticated buildings that are ‘futureproofed’ via a combination of leading-edge physical, human and digital elements

• Several occupiers are expected to set their net zero targets to reduce the country’s carbon footprint as well as dependence on fossil fuels

Retail 6 million sq. ft.* ~2x growth

Near term – OMR Zone 2, GST Road (till Perungalathur), Mogappair and MPH Road

Long term – OMR Zone 3, Poonamallee, Thiruvottiyur, ECR Road, ORR and GST (beyond Perungalathur)

• Growing institutional capital in retail spaces as expansion and consolidation gain steam and new brand entities emerge

• Brands expected to increase the number of stores and right-size their portfolios

• Greater presence of education and health-focused centres in retail clusters, leading to diversification of developer portfolios

Residential 0.24 million units ~1.5x growth

Near term – PT Road, OMR Zone 2, MPH Road, Ambattur, Perambur, Madhavaram and Velachery – Tambaram stretch

Long term – OMR Zone 3, GST Road, ORR, Poonamallee High Road, Thiruvottiyur and ECR

• Change in product alignment owing to consumer demand

• Strong momentum in land acquisition to continue

• Developers' dependence on alternate investment funds (AIF) for financing projects to grow

• Developers to consider emerging logistics hubs by investing in land banks closer to new infrastructure initiatives

I&L 30.9 million sq. ft. ~1.75x growth

Near term – Oragadam, Sriperumbudur, GST Road and Red Hills. Long term – Vallam, Mappedu, ORR, Periyapalayam, Gummidipoondi, Tiruvallur and Arakkonam

• The need for occupiers and developers to strengthen their ESG performance is anticipated to rise; new-age warehouse specifications would now include features such as green certifications, along with energy-saving & green operations Source:

Annexure

Key Infrastructure Initiatives in Chennai

Initiative Description Status

Mass Rapid Transit System (MRTS) (Phase I)

A 19-km elevated railway lane within Chennai, connecting Chennai Central station to St. Thomas Mount via Velachery

Chennai Airport Expansion (Phase II)

Development of a new integrated arrival terminal, followed by the refurbishment of the existing premises

The final stretch connecting Velachery to GST Road is expected to be completed by the end of 2022, while the remaining stations are already operational

The new terminal is expected to be completed by Q4 2022

Comments

Expected to decongest key economic hubs and ease commute between several office and residential locations in the city

Expected to increase airport capacity, facilitate higher passenger traffic, enhance amenities and improve its retail footprint

Chennai Metro Rail (Phase II)

Under phase II, a 107.55-km network with 116 stations would be constructed

Construction has been expedited and phase II is expected to be completed by December 2026. The initial corridor connecting Kodambakkam to Poonamallee Bypass, is likely to be completed by 2025

Metro rail extension (part of Phase II) from the airport to Kilambakkam Bus Terminus via Tambaram was also proposed in 2021

An urban infrastructure scheme worth INR 1,000 crore to bridge the infrastructure gaps in water supply, stormwater drains and road networks across the state Completion expected in 2022

The project would enhance connectivity and ease commute between key office micro-markets in Chennai such as Off CBD, MPH Road, GST Road and OMR

Singara Chennai 2.0

Defence Industrial Corridor

A sustainability project with an investment of INR 500 crore to enhance select parts of the city with clean and green initiatives. Chennai’s Corporation is also in plans to restore heritage buildings in the city under this scheme

Establishment of Defence Industrial Corridor connecting Chennai, Hosur, Salem, Tiruchirappalli and Coimbatore

Proposed in 2021. The state government has also formed a fivemember nodal panel as a sanctioning authority for the project

Development of urban infrastructure is expected to improve the quality of living, support business activities and create new employment opportunities, especially in tier II and III cities

Development of clean and green public spaces along with refurbishment of heritage buildings is expected to enhance the city’s aesthetics and promote tourism in the city. This is likely to boost demand for retail spaces in surrounding locations

Proposed in 2021

Chennai Port - Maduravoyal Expressway

Expansion of ECR

Source: Media articles, 2022; GoTN, 2022; CBRE Research, Q4 2022.

The Chennai Port – Maduravoyal Expressway would help in decongesting heavy traffic and be a lifeline for the port. The planned elevated expressway would be about 20.6-km long and would have two entry points

Expansion of ECR from Chennai to Pondicherry. This road also acts as a recreational zone, connecting Chennai with other southern cities of Tamil Nadu

Completion expected in 2026

Likely to boost industrial cluster developments and manufacturing activity, thereby augmenting I&L demand in tier II and III cities along the corridor

MoU signed for the INR 5,885 crore Chennai Port - Maduravoyal Expressway

Proposed in 2022, completion expected in 2024

The expansion is likely to support recreational real estate activities along the stretch

Kalaignar Nagarpura Membattu Thittam

Initiative Description Status

Chennai Peripheral Ring Road (Phase II)

A six-lane greenfield highway of 12.8-km in section-2 of the 26-km phase II, from Thatchur on 16 to the beginning of Tiruvallur Bypass

Madhya Kailash Flyover

The state government sanctioned INR 46 crore for a unidirectional two-lane flyover at the Madhya Kailash junction in the city

Expected completion in 2025

Comments

The project would improve highway capacity as well as provide better connectivity and efficient transportation to the ports. This would in turn increase demand for I&L assets along the corridor

Proposed in 2022

Chennai-Bangalore Expressway

The 260-km, four-lane Chennai-Bangalore Expressway to be constructed under the Bharatmala Pariyojana and connect Sriperumbudur near Chennai with Hoskote near Bangalore

In order to meet the increasing demand, a new greenfield airport is proposed to be developed along the Chennai-Bangalore Highway at a cost INR 20,000 crore

In May 2022, Prime Minister Narendra Modi laid the foundation stone for the Chennai-Bangalore Expressway

The completion of this flyover would ease connectivity and reduce traffic congestions in OMR Zone 1

The new expressway aims to reduce travel time between the two cities. This would also help spur real estate activity along the corridor

Chennai New Airport

Proposed in 2022

Chennai’s second airport would function alongside the existing Chennai International Airport (MMA) which has reached its designed service capacity

Chennai Airport-Kilambakkam Metro

The 15.3-km Airport-Kilambakkam metro project is estimated to be built at INR 4,080 crore and would run through important locations in the southern suburbs

FinTech city at Nandambakkam, Kavanur

The Tamil Nadu government would develop FinTech city in Chennai in two phases at Nandambakkam and Kavanur. The first 12.8-km developed at Nandambakkam at an estimated cost of INR 165 crore

Expected completion in 2026

Once built, the new airport would be able to handle one billion passengers annually. Along with two runways, the airport is expected to have a cargo handling terminal, aircraft maintenance facilities and other support infrastructure

The project would enhance connectivity and ease commute between key office / residential micro markets in Chennai such as Pallavaram, Chromepet, Tambaram and Vandalur

Proposed in 2021

Multi-modal Logistics Park in Chennai

Tamil Nadu is set to build its first multi-modal logistics park at Mappedu in Tiruvallur - near the automobile and electronics manufacturing clusters of Sriperumbudur and Oragadam. The project is to be executed at a cost of INR 1,200 crore on 158 acres of land owned by the Chennai Port Trust

Source: Media articles, 2022; GoTN, 2022; CBRE Research, Q4 2022.

Proposed in 2021

Once developed, the project would attract both domestic and international FinTech companies which would boost the demand for office spaces

To be established under the Public Private Partnership (PPP) model, the park would help reduce logistics costs, thereby boosting local industries

Initiative

Description Status

Chennai Shoreline Re-nourishment and Revitalisation Project

Tambaram-Chengalpattu Elevated Corridor

A 30-km stretch between the Marina and Kovalam; planned to connect the fragmented portions of the beaches as esplanades for using physical and social infrastructure and promoting art and culture

A six-lane elevated corridor connecting Tambaram and Chengalpattu along the GST Road to be developed at an estimated cost of INR 3,500 crore

Proposed in 2022

Proposed in 2022, completion expected in 2025

Comments

Expected to promote tourism activity along the city's beaches and also drive retail sector demand along the corridor

Likely to ease traffic movement along the GST Road and decrease travel time to reach the southern parts of the state

Lighthouse to Guindy Elevated Highway

A 11-km elevated highway between Lighthouse and Guindy Proposed in 2022

Expected to ease traffic in off CBD locations such as Adyar, Greenways Road, Santhome Main Road, and Gandhi Mandapam Multi-modal Facility Complex at Broadway

A multi-modal facility in Broadway bus stand to be developed at a cost of INR 300 crore with commercial establishments

Proposed in 2022

Chennai Metropolitan Area Expansion

Government Order issues to expand Chennai Metropolitan Area limits from 1,189 sq. km. to 5,904 sq. km. covering villages in Kancheepuram, Tiruvallur, Chengalpet and Ranipet districts

Kilambakkam Railway Station and Skywalk

Development of a new railway station near the upcoming Kilambakkam bus terminal. In addition a 450-m skywalk to be built linking the terminal and the railway station

Announced in 2022

Biodiversity cum Archaeology Park in Kilambakkam

Source: Media articles, 2022; GoTN, 2022; CBRE Research, Q4 2022.

Development of Kilambakkam Biodiversity and Archaeological Interpretation Park in an extent of 16.9 acres of land; the initiative is to mitigate disruption caused to the nearby sensitive ecological zone

Proposed in 2022

Proposed in 2022

Expected to ease connectivity between multiple transpotation modes and boost office and retail activity in the surrounding locations

Likely to support planned development of the city and its suburbs by creating satellite towns and better commuting options; expected to boost real estate activity in the city peripherals

Expected to ease travel and reduce congestion along GST Road

Expected to conserve the ecologically sensitive belt with more green and open spaces

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