Chennai Records Highest Office Leasing in Last Five Quarters, Led by IT Demand: Colliers Report

Chennai's office real estate sector rebounded strongly in the March 2025 quarter, registering its highest leasing activity in the past five quarters, as per a new report from Colliers India. The city clocked a total leasing volume of 2.9 million sq ft during the first quarter of 2025, reflecting a 93 per cent year-on-year growth and confirming its return as a preferred destination for corporate occupiers.

The leasing momentum was concentrated primarily in two key micro-markets: the Pallavaram-Thoraipakkam (PTR) zone and Old Mahabalipuram Road (OMR) Zone 2. Together, these areas accounted for nearly 60 per cent of the total leasing activity in the city. A significant portion of this demand was driven by major corporates securing large blocks of space in Grade A commercial developments.

Notable Transactions by Major Corporates

Among the most significant transactions of the quarter was Tata Consultancy Services leasing 690,000 sq ft at Ozone Tech Park, located in the OMR Zone. This large-scale commitment underlined the company’s continued focus on strengthening its Chennai operations.

In addition, retail giant Walmart signed a lease for 465,400 sq ft in CapitaLand ITPC on Radial Road, situated in the PTR corridor. Global financial services firm State Street also expanded its presence in the city by leasing 202,000 sq ft in the same CapitaLand project.

These large deals reflect the sustained interest of multinational and domestic technology and financial services firms in the Chennai market, with proximity to talent, robust infrastructure, and evolving micro-markets playing a crucial role in location selection.

Surge in Flex Space Leasing

The flexible workspace segment also demonstrated significant growth, with leasing volumes in this category rising to 0.3 million sq ft in Q1 2025. This marks a three-fold increase over the corresponding period in 2024. Flex operators are increasingly expanding in city submarkets to meet demand from small to mid-sized enterprises, remote-first teams, and corporations seeking agile workspace models.

The report attributed this rise in flex demand to hybrid work models that continue to shape workplace strategies, prompting occupiers to diversify their real estate portfolio between traditional and flexible formats.

Decline in Vacancy, Modest Supply

Vacancy levels across Chennai declined by 300 basis points (bps) on an annual basis during Q1 2025. The decrease in vacancy is a result of healthy leasing activity coinciding with a restrained supply pipeline. Demand has been outpacing new completions in the city, particularly in preferred corridors such as OMR and PTR.

Pan-India trends showed a similar pattern. Office leasing activity across India’s top seven cities stood at 15.9 million sq ft during the quarter, reflecting a 15 per cent increase compared to Q1 2024. Chennai, alongside Bengaluru and Delhi NCR, played a pivotal role in driving this growth.

Delhi NCR recorded its highest leasing activity in the past ten quarters, while Bengaluru continued to lead in terms of both fresh supply and demand. Together, Bengaluru and Delhi NCR contributed nearly two-thirds of the new office supply added during the quarter.

Sector-Wise Demand Overview

The technology sector remained the leading driver of office space demand, accounting for 4.4 million sq ft across India, or 28 per cent of total leasing in Q1 2025. Chennai’s growth trajectory was also shaped by this segment, with technology firms opting for large, long-term leases to cater to workforce expansion and consolidation.

BFSI (banking, financial services, and insurance) companies and firms in the engineering and manufacturing sectors also contributed significantly to office demand. The two sectors collectively leased 5.8 million sq ft, representing 36 per cent of the national leasing volume.

The report also pointed out that leasing activity is increasingly being driven by tenants looking for modern, sustainable office spaces with upgraded amenities, efficient floor plates, and better connectivity to transport nodes.

Rise in Rentals Reflecting Strong Fundamentals

With demand outstripping supply across key cities, average office rentals saw a year-on-year rise of 8 per cent during Q1 2025. The increase was attributed to shrinking vacancies, limited availability of ready-to-move-in spaces, and an overall uptick in occupier interest across core business districts and emerging hubs. In Chennai, rental growth was visible in both central business districts and suburban corridors. OMR and PTR, in particular, saw a marginal rental increase driven by strong demand from tech tenants and higher occupancy levels.

Outlook for the Coming Quarters

With robust demand across key sectors and supply pipelines expected to remain moderate, real estate experts anticipate continued momentum in office leasing across Chennai and other major Indian cities. The emergence of flex spaces, renewed activity from global firms, and a growing preference for infrastructure-ready zones are likely to sustain leasing activity throughout 2025. As per trends from Q1 2025, Chennai’s commercial real estate sector is well-positioned to benefit from the larger industry rebound. If this trajectory continues, the city could surpass its previous highs and cement its position as a strategic hub for technology and finance-led enterprises.