News & Views on Indian Real Estate

Monday, March 10, 2008

Move towards SEZs

Before end of this year there might be a correction in the rental rates of commercial real estate space in software technology parks or STPI to the tune of 15%. This may take place because the IT and ITES companies are making a beeline for SEZ space.

As against everyone’s expectations regarding the extension of the STPI sceheme, the FM didn’t make any such indication in this budget. Though the general indication is that it’s not the final decision it will expire in 2009 but still a lot of people expect that even if the STPI is extended, it will not be extended for a very long time and not with the same concessions being provided so far. So, migration to SEZ is happening and will continue.

This means that the space available right now for the Software Technology Park will turn into general office space and demand for it will drop. This combined with the additional supply of commercial space in the pipeline, that will hit the market in cities like Bangalore, Hyderabad, Pune and the NCR over the next 12 months, will result in a correction in commercial rental rates by nearly 15% The numbers show that within the SEZ space, India will have 16 million square feet of SEZ space for IT available and ready before 2010. Around 80% of this has already been pre-booked and the demand is very strong. The price for SEZ space has also gone up in the last year. So, the demand is really high.

While some IT companies plan to hold part of the STP space, for their main operations within the city because of their location. But will move the rest of their operations to SEZs. So, the prices will fall anywhere between 15% or more than that, which is the response one is getting from the real estate industry right now.

Moving to an SEZ outside of the big cities might lead to a loss of talent. What's your take on this?????????