Mumbai: Until 2007, big realty firms invested in the special economic zones, hoping to ride high on global information technology (IT) demand. Things are now fast changing.
More than 70% of the IT office space demand from the US has dried up. The result: high vacancy rates and a fall in rentals.
Brokerage CLSA estimates that Hyderabad will take six-seven years to sell 7-8 million sq. ft of SEZ space that is slated to be ready in the next six months. That can press the panic button for certain companies.
DLF Ltd could be one of them. The company, through its promoter-owned company, DLF Assets Ltd, has booked revenues for 11 million sq. ft but it is earning rentals from only 9 million sq. ft at the moment. DLF Assets is heavily invested in IT SEZs. The question that several experts are asking is that in the current environment, with rising vacancies, is there enough scope for fresh leasing?
The more serious concern, however, is that developers such as DLF could be overstating the extent of leasing activity that is actually taking place on the ground, CLSA says. And there are others in the same boat as well. CLSA’s independent visit to Raheja Mindspace, DLF Gachibowli and Tishman Speyer Gachibowli projects revealed an unleased space of 3.7 million sq. ft, with deliveries due over the next 3-12 months.
Not surprising, rentals are headed down.
Sources say that there have been several cases of cancellation of pre-commitments in the city. And the flow of enquiries have also slumped significantly in the past six months. Rentals have slipped from about Rs50 per sq. ft to Rs30 per sq. ft in the past year.
The report also states that while K. Raheja Corp. has more room for a price correction because the company had paid virtually nothing for the land, DLF’s average price point of Rs52 for a sq. ft highlights a potential slide in rental.