Few SEZ projects likely to be completed before sunset clause deadline of 2020.

There is over 40 million sq ft of new Special Economic Zones (SEZs) supply scheduled for completion before the mandatory deadline of 2020 to qualify for income tax benefits in SEZs but it is unlikely that all the projects will be completed by then, says Colliers Research.

Out of approximately 9.0 million sq ft planned in NCR, only 6.0 million sq ft of SEZ space in NCR likely to see completion by 2020. Bengaluru is likely to add only about 9.7 million sq ft of SEZ space by 2020, says the report.

Bengaluru, the technology capital, accounts for a maximum share of multi-tenanted SEZ stock at 39 percent followed by Hyderabad and National Capital Region (NCR) each on 14 percent, Chennai (13 percent), Pune (12 percent), Mumbai (5 percent) and Kolkata (3 percent). Moreover, a few Tier II cities such as Coimbatore, Jaipur, Kochi, Chandigarh and Visakhapatnam have a few operational SEZs. Most of the multi-tenanted SEZs have a low vacancy level ranging from 4 to 10 per that indicates the popularity of these SEZs among occupiers.

“It is unlikely that all the projects will be completed by the deadline of 2020 which is currently mandatory for the units to qualify for income tax exemption. In such a scenario, the big question is: if the government does not extend the sunset clause, what will be the fate of the SEZs that cannot complete construction by then?

“We recommend the government to make the SEZs policy more consistent to create an environment conducive to investment. It is of great interest to India to promote the export-oriented IT and manufacturing sector through SEZs, if it is aiming to achieve the objective of 'Make in India' at a faster pace,” says Colliers Research.

India has more than 60 multi-tenanted SEZs across all major cities with a cumulative operational stock of about 143.0 million sq ft. SEZs represent about 25 percent of the total multi-tenanted Grade A office stock in India. SEZs are duty-free enclaves, designed to enhance economic and industrial development across various sectors such as technology, manufacturing, pharmaceutical and agriculture. These zones are geographically demarcated regions deemed to be foreign territory for trade operations, duties and tariffs. Over the last few years, SEZ developments in India have gained popularity especially among the technology sector occupiers, but also among traditional sectors such as electronics, gems and jewellery.

In addition, several technology companies such as HCL, Microsoft, Infosys, Hexaware and Wipro also have their own SEZ campuses which are primarily used for their in-house operations.

In the National Capital Region, SEZs are only located in satellite cities, namely Gurugram (Gurgaon) and Noida. At present, the consolidated operational stock of about 20.1 million sq ft is distributed across 12 SEZs in both these cities. Gurugram dominates the market with 72 percent of the NCR's SEZ stock.

The NCR has witnessed stable demand for SEZ office spaces over the past three years with 1.35 million sq ft of annual absorption. “Enquiries for SEZ spaces have increased over the past year. Notably, many of the top-notch SEZ developers have their eyes set on the NCR market. Ascendas and Ireo are coming up with new developments in Gurugram while developers such as Brookfield and DLF are adding new towers in their existing projects,” says Colliers Research.

The NCR has approximately 9.0 million sq ft of new supply planned to be developed over the next five years. More than 70 percent of the upcoming supply is concentrated in Gurugram in micro-markets such as Golf Course Extension Road and Sohna Road. Noida accounts for only 30 percent of the upcoming supply, which is concentrated at Noida Expressway.

According to Colliers estimates, only 6.0 million sq ft is likely to see completion by 2020.

Mumbai is a relatively passive SEZ market with only two operational IT SEZs in the city. The total SEZ stock in Mumbai is about 7.3 million sq ft and these operational SEZs are located in the Powai and Airoli micro-markets. The city is likely to see an addition of 1.8 million sq ft of new supply in Airoli by 2019, most of which is likely to be taken up by existing occupiers.

In their SEZ land located at Rajarhat, Kolkata, the only major city in the eastern part of the country, has observed a slow SEZ space leasing trend over the years primarily due to the state government's apprehension about developing SEZs. Overall, the city has five functional SEZs, of which only two are multi-tenanted.

Most of the SEZs are located in Rajarhat in Kolkata. The total SEZ stock in Kolkata is about 4.0 million sq ft and an additional supply of 2.7 million sq ft in under construction. A few developers are also offering built-to-suit options in their SEZ land located at Rajarhat. The market trend also reveals that domestic technology companies like TCS, Infosys, and Wipro are interested in making their own captive campuses.

Bengaluru, the Silicon Valley of India, accounts for the highest share (about 39%) of the total IT SEZ space in India. Most of the SEZs are strategically located in preferred IT destinations such as Outer Ring Road (ORR) and Whitefield accounted for 71 percent and 16 percent share respectively of the total SEZ stock in Bengaluru, while a few can also be spotted at North Bengaluru and Mysore Road.

Although SEZs have accounted for about 38 percent of the total office space absorption in Bengaluru over the last three years, there was a minimal inflow of new entrants in SEZs in 2017. The demand was primarily driven by occupiers looking to relocate or expand their existing operations in SEZs.

The city is likely to add about 9.7 million sq ft of SEZ space by 2020. In addition, approximately 9.0 million sq ft is in the planning stage. The new supply is concentrated in existing SEZs in ORR, Whitefield and North Bengaluru. Most of the new supply will be taken up by the existing occupiers looking for expansion as 3.6 million sq ft is already pre-committed, says the report.

Hyderabad has operational multi-tenanted SEZ stock of about 20.0 million sq ft primarily located at Secondary Business District (SBD) with a small presence of SEZs in Peripheral Business District (PBD) micromarkets as well. While in 2016 SEZs contributed a share of about 49 per cent in overall new office leasing in the city, the percentage dropped to about 22 per cent of total leasing in 2017. This was primarily due to the very low vacancy rate of 3 per cent in the SBD micromarket. Developers have been quoting similar rents for both SEZ and non- SEZ spaces in the SBD.