The recent notification of the commerce ministry to demarcate part of Special Economic Zones into non-SEZ areas will spur office space leasing in the country, according to a report prepared by research firm Crisil Ratings.
India's office space leasing is expected to benefit from the recent amendments to the SEZ Act of 2005, notified by the commerce ministry on Dec. 6, 2023, it said.
As per the notification, the amendments permit the demarcation of a part of the SEZ areas into non-SEZ ones after repayment of tax benefits availed till date, the report said.
Such a demarcation of non-SEZ areas is expected to create better occupancy through commercial office space leasing, resulting in higher incomes which will outweigh associated costs.
Crisil said the SEZ Act was introduced to drive exports by providing tax exemptions for companies operating within such areas.
After the sunset clause of the Act kicked off in April 2020, the legislation is no longer in effect but higher compliance costs are continuing.
Subsequently, SEZ spaces witnessed a gradual exit of tenants leading to a decline in occupancy, the report said.
Crisil Ratings director Anand Kulkarni said that the changes will allow commercial office space operators to demarcate non-SEZ areas within SEZs on a floor-wise basis.
"This will unlock these demarcated areas to a wider tenant base and support faster leasing. Occupancy for SEZs now stands at 81%. This will translate into close to 17 million square feet of vacant SEZ portfolio, which has a higher likelihood of getting demarcated," he added.
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