DLF Ltd, India’s largest real estate developer, will invest ₹5000 crore to develop a commercial project, led by office development and some retail space, on 27 acres in Chennai’s Taramani area.
The project, DLF Downtown, is its fourth project in Chennai and will be developed in a joint venture with Tamil Nadu Industrial Development Corporation (Tidco), the realty firm said on Thursday.
With this project, DLF would have around 14 million sq ft of development in the southern city, and would become the second largest market after Gurugram.
The 6.8 million sq ft project, which will be built in three phases, will be come under DLF’s commercial property subsidiary or rental arm DLF Cyber City Developers Ltd (DCCDL). It will construct 2.5 million sq ft in the first phase and the subsequent phases will be developed over time.
“Chennai continues to strengthen its position as an IT/ITeS hub with increasing investment commitments from global companies, making it our second largest market after Gurugram. The company has identified a development pipeline of 20 million sq ft and construction of 5.5 million square feet is underway. This will augment our existing 32 million sq ft rental portfolio and we plan to take the national portfolio to over 50 million sq ft once new projects are completed," said Sriram Khattar, managing director, DLF Rental Business.
While the residential business of DLF will continue to focus on Delhi and its suburbs, the company has also outlined a pan-India strategy to expand its rental office portfolio across Chennai, Hyderabad and Pune, Mint reported on 17 December. The rental portfolio is set to grow by 17-18 million sq. ft, with the launch of new projects, including ‘Downtown’ in Haryana, the mixed-use development with investor partner GIC Pte Lid, and the Taramani project.
DCCDL has an average 94% occupancy across its commercial assets. In its Q2 FY20 investor presentation, DLF has guided for annual annuity (lease rental) income of about Rs3,200 crore for FY20, compared to ₹2,900 crore in the previous year. The higher rental income is expected to offset the unsold inventory in its residential portfolio.
DLF has been present in Chennai for the last 15 years and has developed DLF Cybercity Chennai in Manapakkam, which is a large IT special economic zone (SEZ).
Khattar added that the current annual rental revenue from DLF Cybercity Chennai is around ₹500 crore.
“...Once Phase 1 of DLF Downtown is completed and operational, our stabilised rental income from Chennai will be a substantial amount," he said.
A year-end report (2019) on commercial property by property advisory JLL India pointed out that the presence of the information technology services corridor, good connectivity with the airport and rest of Chennai, along with the growth of the Pallavaram-Thoraipakkam belt is driving demand in the Taramani micro-market.
Absorption levels grew in spite of the sharp slowdown in the auto sector, which is the pulse of the city and the state of Tamil Nadu. Meanwhile, new project completions fell by nearly 23% due to the economic slowdown. “So, vacancy levels dipped marginally to 8.7% in 2019. Office rents also moved up 4% during the year. However, the vacancy rate largely remained stable when compared to 2018 as new supply witnessed good pre-commitments," the JLL report said.