New Demarcation Rules To Boost Office Space Demand In IT, ITeS SEZs: Realtors

Real estate players hailed the government's decision to allow the demarcation of a portion of the built-up area of an IT or ITeS SEZ (special economic zone) as a non-processing area, saying it will boost demand for office space in such properties.

An inter-ministerial board of approval, on request of a developer of an IT/ITeS SEZ, can permit the demarcation of the non-processing area of that zone. The inter-ministerial board of approval is the highest decision-making body on SEZs.

The move is expected to benefit developers building IT/ITeS SEZs as this will boost office demand and help fill up the vacancies.

DLF, Embassy Group, RMZ, Tata Realty and Infrastructure Ltd, Brigade, and Sallarpuria are major players in office real estate. There are three listed real estate investment trusts (REITs) -- Embassy Office Parks REIT, Mindspace Business Parks REIT and Brookfield India Real Estate Trust -- that primarily own rent-yielding office assets.

Alok Aggarwal, Chief Executive Officer of Brookfield India Real Estate Trust, said the amendments to the SEZ Rules are an extremely encouraging move.

"This will help us meet the growing needs of the IT/ITES Sector and GCCs and further diversify our tenant base," he said, adding that this would boost occupancy levels.

Ramesh Nair, CEO of Mindspace Business Parks REIT, said, "We commend the proactive approach of the Government of India, in recognising the needs of the industry and bringing in the decision to de-notify SEZ units on a per-floor basis. This progressive reform is a significant step in the ongoing efforts to increase occupancy within IT SEZ Parks, boosting economic activity and creating more jobs."

Aravind Maiya, Chief Executive Officer of Embassy Office Parks REIT, described it as a highly positive development for India's office sector, already gaining strong momentum from global captive centres (GCCs).

"Currently, our SEZ occupancy levels are around 80 per cent, and this amendment will further elevate the attractiveness of our 20 million square feet premium grade-A SEZ office spaces, positioning Embassy REIT on a trajectory towards achieving pre-COVID occupancy levels," Maiya said.

The commerce ministry has amended the Special Economic Zones (Fifth Amendment) Rules, 2023.

Inserting a new rule, the notification said: "...the Board of Approval, on request of a developer of an IT or ITeS SEZs, may permit demarcation of a portion of the built-up area of an IT or ITeS SEZ as a non-processing area of the IT or ITeS SEZ to be called a non-processing area."

In the processing area, units are located for the manufacturing of goods or rendering of services. Non-processing areas are where supporting infrastructure is created.

Anshul Jain, Managing Director - India & Southeast Asia at Cushman & Wakefield, said, "This is a long-awaited and positive move for India's commercial real estate sector."

Benefits such as more flexibility in the manner of carrying out business in SEZs, partial de-notification and ease of transaction between SEZs and DTA (Domestic Tariff Area or non-processing zone) and streamlined process of approval for de-notification, will protect the interest of both developers as well as occupiers of SEZ developments (both existing and under-construction), Jain said.

Vivek Rathi, National Director Research at Knight Frank India, said this amendment permits partial and floor-wise de-notification, thus introducing fresh possibilities for utilisation within SEZs, especially benefiting the IT and ITES companies as they currently dominate the SEZ landscape.