Deteriorating IT Boom Affects Real Estate

Slowdown in IT/ ITeS sectors is effecting real estate firms. Lease of office space to software and BPO firms have fallen by over 30 percent. The trend is particularly bound to affect firms like DLF and Unitech which are building several software SEZs (special economic zones) across the country. Unitech executive said that till just eighteen months ago, software firms booked additional space two years in advance. Now, they are not even occupying the space booked a year ago. A DLF excutive, in charge of selling space to IT firms says: The premium in lease rentals has evaporated and if the situation continues, rentals could actually weaken.

In the past, a steady growth trajectory of software companies allowed to predict and plan their additional requirement for space. In 2003-07, new hires by the top three software firms like TCS, Wipro and Infosys grew at over 20% each year. For 2008, analysts expect a drop in new hires. Says an analyst with a Mumbai-based broking firm: Hiring will continue to slow down in future if the dollar remains weak. A slowdown in the US economy will worsen things further for software companies in the short term.

Industry experts expect that if the weak market continues to persist, companies may actually slow down their investment in the upcoming SEZs. Companies like Unitech and DLF say that work in all their new zones across the country are progressing on schedule and they are not pulling back yet. The DLF executive, however admits, We will be in no hurry to get approvals for new IT/ITeS zones in the near future.

Software companies read the situation as a positive development. In the last two years, lease rentals in metros like Mumbai, Delhi and Bangalore have shot up nearly 50-60%, forcing firms to move to smaller cities like Pune, Bhubhaneshwar and Jaipur.

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