SEZ deadline spurs space demand::Business Line

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IT SEZ developers are keeping their fingers crossed in Chennai as initial estimates indicate that demand could outstrip supply during the next two years.

Leasing of IT SEZ space in Chennai hit an all-time high of more than 2 million square feet in 2011, and the supply and demand is set to triple in the next two years, say property consultants and developers. The possible phasing out of the SEZ benefits from April 2014 is making IT companies and SEZ developers exploit the existing window of opportunity as fast as possible, they say.

Developers and IT companies are focussed on the SEZ deadline, and are scrambling for space. If they can meet the deadline of March 2014, tax incentives and benefits will be available to them for the next 15 years. While the fate of the SEZ could depend on what the budget holds next month, for now, companies are keen on exploiting the available space.

STRONG POSITIONING

SEZ developers estimate that there are serious enquiries for more than a million square feet of built-up IT SEZ space in Chennai as of now. This demand will peak several fold before petering out towards the deadline. Chennai is well poised to benefit from this demand, as the half-a-dozen SEZ developers, including a couple within the city, and some others near the suburbs of the city gear up to exploit the demand.

Neither of the remaining two IT destinations in South India was as favourably placed in terms of SEZ space supply — Hyderabad is suffering from a negative perception, and the market was yet to recover, and the anticipated supply in Bangalore is mostly pre-committed and availability of space won't match that in Chennai. More than 6.6 million square feet of IT SEZ space are in the pipeline for the next two years, according to Mr Badal Yagnik, Managing Director – Chennai, Jones Lang LaSalle, an international property consultant. An added strength is the location of the SEZs that are being put up.

Be it Ramanujan IT City, by Tata Realty, at the head of the IT corridor, DLF IT Park on the fast-developing South West suburb or Shriram Gateway at Tambaram, a suburb approximately 20 km south of Chennai on NH 45, they all have the benefits of connectivity and proximity to the rest of the city. The other players, relatively further afield, are also well-located on the IT corridor, the fastest developing zone in Chennai, points out Mr Yagnik.

Of the seven IT parks in and around Chennai, the largest are the DLF IT Park, Shriram Gateway and the Ramanujan IT City, which are considered at the top of the pile in the competition among the IT SEZs.

TRIL TO EXPAND IT SEZ

With little option of new projects coming in, no new entrant can meet the SEZ norm of 25 acre development involving more than 3 million square feet of built-up space and meet the available deadline, points out a developer. Essentially, the field is open to the existing players, says Mr C. Velan, ED and CEO, Tril Infopark Ltd, which is putting up Ramanujan IT City.

Tril Infopark is actually considering scrapping planned development of retail and residential space to make way for an additional one million square feet of IT space, besides the 3.2 million square feet that will be in place next year, he says.

Ramanujan IT City has leased out more than 1.3-1.5 million square feet of space to IT companies from 2010-end through 2011. That is essentially almost all the built-up space, and is expediting the balance that is in the pipeline.

The number of occupants planning to expand space in Chennai and prospective clients wanting to locate in Chennai is on the increase. As of now there are enquiries for more than 1.5 million square feet of IT SEZ space, including a handful of large players, requiring a few hundred thousand square feet each, he says.

By the SEZ deadline, more than 5-6 million square feet of IT SEZ space is likely to hit the market, he estimates, but the demand will exceed this supply, he says confidently. From April onwards, it will be a busy season for SEZs, as IT companies start implementing plans that are being finalised, he says.

Shriram Gateway expects to have the entire 3 million square feet of development in place by middle of next year, says Mr R. Murugesan, Chief Operating Officer, Shriram Properties, the SEZ developer. It has completed more than 1.6 million square feet of development and work is on for the balance. Its existing tenants are keen on expanding, and approximately a third of the enquiries are from new players, he estimates.

The developers are optimistic on lease rates staying buoyant in the face of these predictions, says Mr Murugesan. Shriram Gateway is leasing space close to Rs 40 a square foot a month, which is a significant development as compared with the rates that prevailed in 2008-09.