The Office Space Boom

From the days of looking for 5,000 sq ft of office space for setting up tech
startups the in 1990s, we have come a very long way. "These days, many companies
look for a half mn to 1 mn sq ft of space," says Anshuman Magazine, managing
director of the real estate consulting firm, CB Richard Ellis, South Asia.

India has made its mark across the globe with its IT and ITeS capabilities.
But it's the real estate development back home, which is the prominent physical
evidence of the impact Indian companies have made internationally. The country
has already crossed the 100 mn sq ft mark of office space available. By the end
of the year, CB Richard Ellis estimates it to cross the 140 mn sq ft mark.

India is now dotted with technology parks, not just in the metros, but in
several other cities as well. And as the special economic zone (SEZ) wave grips
the country, IT is riding that as well. The government is creating the policies
to attract investments, so that various industries-IT, manufacturing and
others-get the right backing, tax breaks and the space to grow. The real estate
industry, meanwhile, has also risen to the challenge and is now creating
high-quality, world-class office spaces for the upcoming and new industries.

The Story so Far

When the pioneering IT companies started doing well, it spawned a
whole new set of companies wanting to duplicate the success. "When the IT
industry was just finding its foothold in Bangalore, there was only one
above-average office building in Bangalore, in the heart of the city," says
Magazine. Companies started setting up, expanding, merging and getting acquired.
This accelerated the need for space. Companies wanted huge spaces to seat their
hundreds of employees; they felt the need to look for large plots of land,
instead of being in separate buildings spread all over the city. Of the 100 mn
sq ft of office space available currently, 80-85% is taken up by technology
companies, says Magazine. While IT/ITeS has been the driver for the growth in
the office-space market, financial companies, too, are now in need of bigger
space.

The growth of the IT industry also brought in improvements in the quality of
real estate developments. IT industry introduced the concept of workstations,
and India moved away from an environment where only the boss's room was
air-conditioned. Productivity being of paramount importance to companies,
air-conditioned floors became a reality. With office campuses shaping up on the
outskirts of the city, companies started thinking of ways to keep their
employees happy, leading to the advent of fully equipped office spaces complete
with gyms and cafeterias.

Along the way, in 1991, the government brought in the Software Technology
Parks of India (STPI), which helped software development companies get their
export-oriented act together in a better manner. The STP scheme has brought in
tax benefits and various attractive offers to software development companies.
STPI has several centers across the country and has set up several parks.

Where is the Action?

Bangalore, the National Capital Region and Mumbai have seen
tremendous growth in office space. Pune is also seeing rapid development.
According to Magazine, proximity to Mumbai, supply of qualified manpower from
scores of professional educational institutions, and good weather, make Pune a
formidable rival to Bangalore as an ideal IT investment destination.

Chennai has seen loads of office space construction as well, as has
Hyderabad. Kolkata is next in line, though the development levels are not to the
tune of what has been seen in Pune and Hyderabad.

All office-space construction has to take into account whether the companies
setting up shop in them will be able to find quality manpower. So, with huge
developments concentrated in the tier-1 cities, the new developments are
sticking closer to these zones, so that manpower availability is handled better.
Therefore, even though India has huge manpower potential in its tier-2 cities,
companies are not in a huge rush to set up shop there. Mysore, Jaipur, Mohali,
Kochi, Trivandrum, Ahmedabad, Indore, and many other such cities have seen
investments from infrastructure builders, and there are companies setting up
shop there as well. However, this is more due to the trickle-down effect, not
due to any excitement generated by the potential in these cities.

Technology Parks and SEZs

Several builders and infrastructure providers have created office
spaces in the form of technology parks. With these developments, they hope to
cater to technology companies by providing the kind of infrastructure they
require for their business. Some of these infrastructure providers are Ascendas,
Larsen & Toubro, Godrej Properties, the Brigade Group, and Sobha Developers. You
can catch the details of some of them here.

Many setups start as technology parks and can get SEZ status by meeting the
SEZ guidelines. Other than this, several IT SEZs have also been sanctioned by
the government. Anshuman Magazine considers that SEZs can play a very powerful
and instrumental role in the next phase of IT/ITeS growth of India.

Being part of a special economic zone brings in many benefits. SEZ is a
specifically delineated duty-free enclave, deemed to be a foreign territory for
the purposes of trade operations, duties and tariffs. As of 2007, more than 230
SEZs have valid formal approvals and over 100 have been notified. Out of these,
64 are purely for IT and IT/ITeS purposes. IT giants such as Infosys, Wipro,
Satyam and TCS are among the ones which have got notified so far. According to
Magazine, "With the 100 notified SEZs as on March 31, 2007, the expected
investment is over Rs 300,000 crore and is further expected to create over
1,575,452 additional jobs."

More than just Intent

However, having a policy on paper and approvals for SEZs is only one
part of the picture. SEZs are on large land acreage. For a special economic zone
to duplicate an economically active area, you need a working social environment
as well. This means massive investment in social infrastructure as well,
including schools, hospitals, housing zones, hotels and restaurants,
entertainment avenues, and so on. Otherwise, it is not possible to attract
investors or manpower.

All office-space infrastructure has to ensure a whole host of things for
companies. They need proper connectivity to the area-whether by road, rail or
air. Power and quality of power is crucial, and so is availability of water.
Digital connectivity is yet another. Putting all these things together is no
mean job.

Then there has to be clear and transparent laws in place. Right now, there is
much confusion on what is permitted and what is not. By and by, the rules are
expected to become clearer. And that will further bring up the confidence level
of investors, and companies looking for space.

The Drive for Investments

You could have huge tech parks and SEZs shaping up across the
country. You could have loads of money being pumped in to set up the
infrastructure. And you could even have the people to work in them. But the need
is now for huge investments-investments that will create the environment
required for a viable social setup. The SEZ Act allows for 100% FDI in SEZs. You
also need companies to come and set up their centers in the country. All this
cannot happen without loads of effort going into it. According to Magazine,
"There has to be a huge effort on the marketing side. You need the setup, you
need the infrastructure, the manpower, and all of them have to be put together
in an irresistible package, for the investors to come in."

 

 

 

 

 

 

 

The Ambiguity Now


Underlying all this positive sentiment is the ambiguity that SEZs
have brought in with respect to STPI. Companies who have leveraged the STPI
schemes are still ambiguous with respect to SEZs. The SEZ policy says that a new
business can be set up in the zone, but no relocation of an existing business
will be allowed. So, existing STP schemes and then moving to SEZs is currently
in a haze. An extension of the STP scheme for such companies is expected.

Lots of Supply Ahead

As the IT/ITeS industry goes ahead with its strong growth plans, the
demand for office space continues to be robust. And by the looks of it, supply
also shows no sign of being in a crunch. This spells good news for companies, as
they get a lot more choice to set up their offices at competitive prices. The
pressure is now on developers to give better quality spaces at the best rates.
If infrastructure development happens on similar lines, there is little reason
to go wrong to keep the IT growth going. Plus huge, innovative, well-packaged
and concerted marketing efforts at the government and industry level can drive
in investments into the country. This will ensure that the huge investments
going on now do not go waste.

Suma E P with
Charanya V and Vividha Aggarwal

maildqindia@cybermedia.co.in