The Growth Story

Indias economy has been growing at an average rate of 7.1%
over the last six years and as per government estimates, is expected to grow
stronger at 8-9% in FY 07-08. The service sector that contributed more than
55% to the 2006 GDP composition maintained its growth momentum and expanded by
140 basis points over the last year. The IT/ITeS industry continues to be the
main driver of the service sector and, in turn, the economy.

The economy is reaping the benefits of the Indian governments
foresight in early 1990s when they established the Software Technology Parks of
India (STPI), a society set up by the Department of Communication and
Information Technology, Government of India in 1991, with the objective of
encouraging, promoting and boosting Software Exports from India. SPTI registered
units are eligible for various benefits from tax exemptions to 100% foreign
equity.

Currently the major clusters with IT/ITeS activity in the
country are:

• Gurgaon/Noida (Delhi and NCR)

• Mumbai, Navi Mumbai

• Bangalore

• Chennai

• Hyderabad/Secunderabad

• Pune

• Kolkata

A total of about 110 mn sq ft of Grade A office space is
operational in these seven cities as of Q3 07. We estimated that about 65-70%
of this existing Grade A stock is occupied by IT/ITeS occupiers, which account
for about 70 mn sq ft.

Additionally, we foresee a total of 156 mn sq ft of Grade A
space to be operational in the next 2-3 years, doubling the current stock of
Grade A space in IT Parks or SEZs.

As shown in figure 1, by end 2009, we expect about 62% of IT
Parks/SEZs to be operational in tier-2 cities of Chennai, Hyderabad, Pune, and
Kolkata compared to 38% in the tier-1 cities of Mumbai, Delhi, and Bangalore. A
closer look as shown (figure 2) reveals that cities of southern India namely
Hyderabad, Bangalore and Chennai shall witness maximum construction of IT Parks/SEZs.

Although the tier-2 cities shall witness growth at breakneck
speed and are increasingly becoming the cities of choice for IT/ITeS firms that
are on an expansion drive and looking for cost effective real estate
destinations, key micro-market locations in tier-1 cities will remain attractive
destinations in the near future.

Tier-1 cities are able to provide opportunities through new,
upcoming locations that entail lower land values. For example, suburban
locations such as Navi Mumbai will witness the next phase of real estate
development. The first Special Economic Zone within the Mumbai city limits is
being developed in Chembur, a central Mumbai suburban micro-market.

Similarly, Bangalore is expected to witness large developments
on the Outer Ring Road (ORR) stretch, which will be established as a major
secondary business district and Whitefield, an established suburban business
district. We foresee 50-55% of total upcoming stock in IT Parks/SEZs in
Bangalore by 2009, amounting to about 35 mn sq ft to be developed in these two
key locations.

DLF and Unitech have floated plans to build 8 mn sq ft and 4 mn
sq ft of IT Parks/SEZs respectively in the suburbs of DelhiGurgon and Noida.

With such large scale and fast pace of development of IT Parks/SEZs
across major IT/ITeS clusters across the country, backed by improving
infrastructure, government support, presence of Grade A developers, past
property performance, the IT/ITeS industry is set to fuel further growth to the
Indian Economy.

Abhishek Kiran Gupta

The author is senior manager, Strategic
Consulting & Research

Jones Lang LaSalle Meghraj