The recent amendment to SEZ Rules, 2006, allows partial and floor-wise denotification, potentially unlocking 15-18 million sq ft of IT/ITeS SEZ space, according to a JLL report. The amendment is expected to inject supply into core markets, with leasing opportunities rising in submarkets like Bengaluru, Chennai, Delhi NCR, Hyderabad, and Pune.
The move, allowing floor-wise denotification of SEZ spaces for IT/ITeS use, was welcomed by stakeholders, including Real Estate Investment Trusts (REITs). The denotification presents opportunities for both landlords and occupiers, reviving rental growth for SEZ spaces and offering new supply in core markets.
The amendment addresses challenges faced post the withdrawal of direct tax holidays for IT/ITeS SEZ units, leading to increased vacancy rates. The recent notification of Rule 11B allows floor-wise demarcation in the built-up area, transforming SEZs into dynamic office hubs.
While some developers have already denotified under-construction SEZs, the recent amendment focuses on converting existing vacancies in operational SEZ office assets. However, considerations like repayment of benefits and controlling access will play a role in evaluating denotification opportunities.
Samantak Das, Chief Economist and Head of Research at JLL, anticipates a detailed notification in the next 4-6 weeks, providing clarity on the approval process and operational aspects. The full denotification process is estimated to take 6 to 10 months.
Rahul Arora, Head of Office Leasing Advisory at JLL, emphasizes the opportunities for both landlords and occupiers, highlighting the potential negotiation headroom for occupiers with the introduction of denotified SEZ supply.
