Realty Bites Tech Hubs in Bangalore, Chennai

April 24, 2008	(Be the first to rate this story!)  Loading ...
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The stock of unoccupied properties with real estate developers in the main technology hubs of Bangalore and Chennai is mounting and indications are that their problems will only get worse as software companies head towards greener pastures.

In Bangalore’s Whitefield suburb, once a magnet for IT firms, supply outstripped absorption by 300,000 sq ft in 2007 and about 8% of the developed area remained vacant, data from real estate consultancy Cushman & Wakefield (C&W) show. Prices are stagnating and the situation is deteriorating. In the first three months of 2008, the demand-supply mismatch was more than a million sq ft.

If Whitefield is in a bad way; the Old Mahabalipuram Road (OMR) technology cluster on the outskirts of Chennai is deep in the doldrums, with just nine deals in the whole of 2007. Of the four million sq ft that came into the market last year, only 1.7 million sq ft were absorbed even as rentals fell by 18% and the vacancy rate was up to 11%, again according to C&W data. Most of the more than half a million sq ft that entered the market between January and March have gone a begging.

Property developers’ greed must take a major portion of the blame for the current plight, even insiders say. “The key factor contributing to the oversupply is the consistent overpricing of projects in both micro markets. Developers who priced projects at Rs 4,000 per sq ft were unknowingly killing their golden goose in a sense,” Shriram Properties managing director M Murali said.

Whitefield and the OMR cluster, where IT and technology-enabled services firms occupy most of the office space, could be delivered another blow when a government scheme which provides tax incentives to companies in so-called “technology parks” comes to an end next year.

“STP (Software Technology Park) units and business parks in both locations will take a beating in rentals with the sunset clause (for the Software Technology Parks of India scheme) ending in March 2009. Firms will now increasing look towards Special Economic Zones (SEZs), rendering a number of buildings vacant,” Mr Murali said. And a prolonged downturn in the US will only add to the misery. The OMR cluster also faces a peculiar problem: the Tamil Nadu government does not permit IT parks and STP units to lease space to non-IT firms.

“A number of developers of STP space in Chennai have started offering a variety of attractive terms such as free car-parks, incubation space while the project is under construction, lower deposits and rent-free periods so that they do not have to bring down the base rent. Given the competition, a number of them are also appointing exclusive marketing agents to market their IT parks,” Ramesh Nair, the MD of Jones Lang LaSalle Meghraj said.

The silver lining for property developers could be the interest from start-ups and mid-sized firms as rentals fall. Nearly a third of the transactions in both the OMR cluster and Whitefield involved small- or mid-sized firms.

News Published Under:   Real Estate India, Chennai, Bangalore |

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