New SEZ Rules to Boost Demand for Office Space in India

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The real estate industry has welcomed 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. This move is expected to boost demand for office space in such properties and benefit developers building IT/ITeS SEZs.

Key Players in Office Real Estate

Major players in office real estate, including DLF, Embassy Group, RMZ, Tata Realty and Infrastructure Ltd, Brigade, and Sallarpuria, are expected to benefit from this decision. Additionally, 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, are also poised to gain from this move.

Industry Experts' Perspective

Industry experts have lauded the government's decision. Alok Aggarwal, Chief Executive Officer of Brookfield India Real Estate Trust, described the amendments to the SEZ Rules as an extremely encouraging move that will help meet the growing needs of the IT/ITES Sector and GCCs and further diversify the tenant base. Ramesh Nair, CEO of Mindspace Business Parks REIT, commended the proactive approach of the Government of India in recognizing the industry's needs and bringing in the decision to de-notify SEZ units on a per-floor basis. Aravind Maiya, Chief Executive Officer of Embassy Office Parks REIT, termed it as a highly positive development for India's office sector, which is already gaining strong momentum from global captive centres GCCs.

Key Changes in the SEZ Rules

The commerce ministry has amended the Special Economic Zones Fifth Amendment Rules, 2023, inserting a new rule that allows the Board of Approval, on request of a developer of an IT or ITeS SEZs, to permit demarcation of a portion of the built-up area of an IT or ITeS SEZ as a non-processing area. This will provide more flexibility in carrying out business in SEZs and ease the transaction between SEZs and DTA Domestic Tariff Area or non-processing zone.

Positive Impact on Commercial Real Estate Sector

Anshul Jain, Managing Director - India & Southeast Asia at Cushman & Wakefield, called the move a long-awaited and positive step for India's commercial real estate sector. Vivek Rathi, National Director Research at Knight Frank India, highlighted the benefits of partial and floor-wise de-notification, which introduces fresh possibilities for utilization within SEZs, especially benefiting the IT and ITES companies that currently dominate the SEZ landscape.

The government's decision to allow the demarcation of non-processing areas in IT/ITeS SEZs is a significant step that will boost demand for office space, benefit developers, and create more jobs. The real estate industry has welcomed this move, which is expected to have a positive impact on the commercial real estate sector in India.