Will new SEZ rules help fill up vacant offices?

livemint.com:

Mint explains. The Special Economic Zones Act, 2005 was introduced to drive exports by giving tax breaks to firms operating in SEZs. The tax benefits ended in 2020, but higher compliance requirements continued.

As a result IT/ITeS SEZs lost their appeal and saw a gradual exit of tenants. On 6 December 2023, the Central government made amendments to the SEZ Act, permitting demarcation of parts of SEZ areas as non-SEZ areas after repayment of tax benefits availed till date. Demarcated areas are expected to have better occupancy and higher rental income, in line with existing non-SEZ spaces.

Around 189 million sq ft of IT/ITeS SEZ space is available in the top seven housing markets, of which 30-35 million sq ft are vacant, says property advisor JLL India. Since 2020, vacancies across SEZs have risen every year. SEZ vacancies rose from 9.7% in December 2020 to 19.4% in September 2023.

At least 15 million sq ft of SEZ space would be eligible for denotification, says JLL. Post conversion into non-SEZ space, vacancy levels will shrink as office park owners can attract new tenants for office spaces. Overall office vacancy, which is significant due to vacancies in SEZs, will also reduce gradually.

Developers including DLF Ltd and the three listed office REITs—Embassy, Mindspace and Brookfield India—have applied for de-notification of SEZ spaces within their IT parks. Each has applied to convert around a mn sq ft. DLF’s rental arm, DLF Cyber City Developers, has applied for denotification of 1.1 mn sq ft and hopes to start leasing it from Mar-end.