SKY-HIGH office rentals in Bangalore are expected to decline in the coming months as software and BPO companies head towards special economic zones (SEZs) to safeguard tax incentives which they currently enjoy under a scheme due to expire in March 2009.

The anticipated move by the IT and BPO companies, which occupy the bulk of commercial office space in the city, is being triggered by the scheduled expiry of the software technology park (STP) scheme and the lack of clarity by the government whether it will be extended. Thirteen SEZs have been approved in Karnataka, 11 of them in Bangalore. These include company-owned SEZs by the likes of Infosys and Wipro and those being promoted by property developers.

It is estimated that the IT sector in Bangalore, which employs some six lakh people, occupies about 100 million sq ft. Three-fourths of this is taken on lease. "If the tax holidays as per the STP scheme cease, prices in all likelihood will witness a decline. However, there is no clarity on the quantum of correction," Cushman & Wakefield India director (tenant strategies & solutions) Kaustav Roy said.
Companies expanding operations or setting up new businesses in the last six eight months have shown a preference to move to SEZs, Mr Roy said. Smaller companies, however, are expected to remain within STP units, he said.

Office space rentals have risen steadily in Bangalore during the last few years - from Rs 22-42 per sq ft in March 2004 to Rs 48-78 per sq ft at present.

Source: Economic Times