IT-BPO Sector's Recession Woes Hit Indian Real Estate
The uncertain future of India's Information Technology (IT) and Business Process Outsourcing (BPO) sector, triggered by the US recession, has compelled some real estate developers to put their projects on hold. Others are forced to reduce rentals and renegotiate lease agreements to stay afloat.
Shrinking Demand and Plummeting Rentals
- Demand from the IT-BPO sector is dwindling rapidly.
- Rentals for IT-ready office spaces have crashed by up to 40%.
Impact on Real Estate Developers
- Housing Development and Infrastructure (HDIL): Has decided to slow down development of its two IT SEZs in Kochi and Mumbai due to the drastic fall in rentals (25-40%).
“Since rentals have crashed by 25-40%, there is no point developing these projects immediately,” - Ashok Kumar Gupta, Director, HDIL.
- Ganesh Housing: Is negotiating with potential clients for its 6 million square feet SEZ in Gujarat, highlighting the comparative affordability of space in Gujarat versus IT hubs like Pune and Bangalore.
“Gujarat can offer cheaper space compared with IT hubs like Pune and Bangalore,” - Bhavin Mehta, Business Development, Ganesh Housing.
Renegotiations and Price Adjustments
- Bangalore's Real Estate Scenario:
- Srinivas Reddy is open to negotiations after initially quoting Rs 40 per square feet for 18,500 square feet space in Electronic City, with no takers.
- Ranka Group, with 1 lakh square feet at KR Puram, is facing resistance from potential clients who are unwilling to pay more than Rs 35 per square feet, despite the group's demand for Rs 45 per square feet.
“We are demanding a rent of Rs 45 per square feet but potential clients are not willing to offer more than Rs 35 per square feet,” - AK Shetty, COO, Ranka Group.
Industry Insights
- Renegotiation of Lease Agreements: Expected to increase as the renewal dates of lease agreements approach, given the significant crash in real estate prices.
“Renegotiations on lease rentals are bound to happen now since the real estate prices have crashed considerably. The biggest problem for the realtors will be the projects that are under construction and those that have not yet been occupied,” - Raman Roy, CMD, Quatrro BPO Solutions. “Typically, these lease agreements are signed for a period of three years and have an automatic rental escalation clause. Since rentals have crashed below the levels prevailed 2-3 years back, renegotiations will happen for sure,” - Anshuman Magazine, Head of South Asian Operations, CB Richard Ellis.