Amidst talk of high rentals and spiralling land prices, IT space developers are a concerned lot.

Oversupply of IT space is driving down lease rates in Chennai, while there is a huge unmet demand for quality office space by non-IT companies that is driving up rentals.

IT space developers, who have enjoyed the benefits of a higher built-up area and permission to set up multi-storeyed buildings when others were not allowed to do so, are now hoping the Government would permit them to allot the surplus space for non-IT companies.

Their argument is that the Government encouraged them to put up IT space but now for reasons outside their control the demand for IT space — other than IT SEZ space — is dropping.

In Chennai, Mr S. Salai Kumaran, Secretary, IT Parks and Infrastructure Developers Association (IT-Idea), says the State Government encouraged developers to set up IT space for the development of the IT industry.

As an incentive, the developers were allowed to build 50 per cent more space in a given area of land than their non-IT counterparts — IT space developers are allowed a Floor Space Index of 3.75 against 2.5 for others. (To illustrate: IT space developers could build 375 sq.ft area in 100 sq.ft land while others were permitted only 250 sq.ft).

According to Mr Prakash Challa, Managing Director, Srinivasa Shipping and Property Developers Ltd, the developers have not overreached themselves and created a surplus. But because of the suspense whether the benefits under STPI would continue beyond March 2009, IT companies are opting for SEZ space. This has led to a drop in demand for non-SEZ IT space.

He says in SEZs, even those that are set for completion in September 2009 are getting booked fast in and around Chennai. If the STPI benefits continue, the IT companies would definitely take up the space.

The problem has hit cities wherever additional FSI was allowed for IT companies.

Mr Challa says Mumbai, for instance, tackled it by allowing financial institutions, banks and insurance companies take up space in IT buildings. Hyderabad does not face the problem because it does not have FSI standards and Bangalore too does not allow extra FSI for IT companies. This is a problem peculiar to Chennai.

According to international property consultants, Jones Lang LaSalle Meghraj, there is over 3.8 million sq.ft of vacant IT space in Chennai. But there is considerable demand from, financial, manufacturing and infrastructure companies..

Mr Challa says that in peripheral areas such as Taramani and Perungudi, IT space lease rents are at around Rs 45 per sq.ft a month. Further down the IT corridor, along the Old Mahabalipuram Road, IT space fetches about Rs 35 and lower per sq.ft. Quality non-IT space is simply not available.

In the city, IT space lease rents are in the Rs 55-60 range and in suburbs such as Ambattur, rates are below Rs 50 per sq.ft and dropping. According to one property consultant, more space is coming in — over 12.5-13 million sq.ft of IT space is in the pipeline this year and three million next, which would only add to the surplus.

Conversely, non-IT office space lease rents have jumped 15-20 per cent to Rs 80-85 per sq.ft a month in the Central Business Districts. During the current year, they are expected to appreciate by a further 15 per cent because of the shortage of space.

© Copyright 2000 - 2009 The Hindu Business Line