T drives demand in SEZ spaces

T drives demand in SEZ spaces
Of the 35 SEZs coming up in the city, 26 are for the IT sector, says Leena Mudbidri


Special Economic Zones (SEZ) are changing the cityscape. SEZs are the prime drivers behind commercial real estate demand in the vicinity. There are 35 SEZs coming up in Bangalore and of them 26 are IT SEZs.
"What makes an SEZ an attractive option for several companies to set up shop is primarily the incentives offered such as a tax exemption for 10 years," informs Karnataka Industrial Areas Development Board (KIADB) CEO, D N Nayak. "SEZ units may import or procure from domestic sources, duty free, all their requirements of capital goods, raw materials, consumables, spares, packing materials, office equipment, for implementation of their projects in the zone without any license or specific approval," he adds.
The IT boom has seen a spurt in IT-oriented companies establishing their presence in the city, fuelling the demand in IT/ITeS SEZs. Of the 21.4 million sqft of notified SEZ space in Bangalore, IT and ITeS sectors comprise a whopping 90 percent.
IT SEZs
Bangalore is expanding exponentially and with more multinational IT corporate houses establishing their office spaces here, there has been a spiralling demand for commercial spaces in all the city zones.
IT has made the city its bastion and this is reflected in the fact that the IT and ITeS sectors comprises 90 percent of the 21.4 million sqft of notified SEZ space in Bangalore. In the light of this, 75 percent of SEZ office space, which accounts for 5.8 million sqft, is being developed on the BTS (built-to-suit) module, i.e., developers are designing office spaces according to their client's specifications. This pre-committed office space supply will be ready by 2008-09.
BTS office spaces seem to be more in vogue given the current scenario and SEZs seem to fit the bill. It is about 15-20 percent cheaper to build in SEZ space, compared to non-SEZ space in the country resulting from various fiscal benefits available to SEZ developers. The BTS or pre-commercial developments usually measure more than 2.3 lakh sqft in area and are offered at a premium, i.e. 25-40 percent extra, lease rental. BTS offices also offer scalability options and upgradations to suit the needs of a growing business establishment. Another reason why the BTS concept has gained in popularity is because the company occupying the customised commercial space gets the advantage of leasing it out to another tenant.
According to DTZ, property consultants, out of the 26 IT SEZs coming up in the city, 17 are non-captive, which means, the SEZs are developer/government-promoted for multiple tenant occupation. The other nine are captive SEZs, that is, a campus for the use of a single company.
Out of the 17 non-captive IT/ITeS SEZs, eight are notified and operational, and eight are formally approved and pending notification. These are also under various stages of planning and development, and not fully operational. One is in the in-principle approval stage.
In the SEZs for the IT/ITeS sectors in Bangalore, about 21.4 million sqft of the notified land is under development. Of this, 19.7 million sqft has been formally approved. Major IT SEZs are coming up primarily along the Outer Ring Road (ORR) around Hebbal and Devanahalli in Bangalore North, and Sarjapur, Varthur, and Whitefield in Bangalore south-east.
The Information Technology Park, Bangalore (ITPB) and Export Promotion Industrial Park (EPIP) at Whitefield catapulted the zone to the top of the premium commercial space chart of the city.
Non-IT SEZs
According to Satish B N, Director, Occupier Services, DTZ, there are nine non-IT SEZs in Bangalore under different industry segments that include:
Biotech: In Anekal Taluk near Electronic City (captive) - 86.4 acres, and Karnataka Biotechnology and Information Technology Services (KBITS) in Phase 3, Electronic City (non-captive) - 103 acres.
Textiles: At Doddamannugudde, Ramanagaram - 240 acres.
Aerospace: At Devanahalli - 918 acres.
Services: At Ramanagaram - 971 acres.
SEZ infrastructure
In the industrial areas developed by the KIADB, the Board basically provides good roads, water and electricity. To ensure adequate and uninterrupted supply, water is pumped to all the major industrial areas from river sources and to smaller industrial areas, water is supplied from bore or tube wells. Karnataka Power Transmission Corporation Limited and five regional Energy Supply Companies provide electricity to all the industrial areas.
Investors are also free to have their own water supply arrangements from surface or ground sources, wherever possible.
Airport SEZ
The Bangalore International Airport Limited's (BIAL) SEZ has received a no-objection certificate from the Board of Approval in the Commerce Ministry to set up an airport SEZ worth Rs 3,384.65 crores around the new airport.
SEZ rentals
With the escalating demand for SEZ space in peripheral locations, the SEZ rentals are anywhere between Rs 40-45 per sqft which is marginally higher than the existing average peripheral business district (PBD) rates. However, compared to the rentals of Grade A office space in the central business district (CBD) going at Rs 90-110 per sqft, the rentals at these SEZs is fairly less.
But this figure is slated to rise with the demand for SEZ office space going up against the diminishing supply. According to a DTZ report, in 2007 supply exceeded demand in non-SEZ space. Over 10 million sqft of space is expected to further add to the existing stock over the next two years. On the other hand, the SEZ space is still not enough and the present level of development is guided by a demandled supply through pre-commitments or BTS. This kind of ready-to-move-in SEZ options available over the next 8-12 months would be limited.
According to a report on Special Economic Zones (May 1, 2007) prepared by the Ministry of Commerce & Industry, Government of India, the expected investment in SEZs will be Rs 3,00,000 crores and the employment generated will be four million additional jobs by December 2009 in the State.