Flexible workspaces dominate Gurugram’s demarcated SEZs
Following the relaxation of SEZ rules, flexible workspace operators have become the leading occupiers of demarcated SEZ office spaces in Gurugram.
Gurugram is a city just southwest of New Delhi in northern India. It is called India’s Millennium City because of rapid development in the early 2000s. Gurugram has become one of the country’s top corporate hubs, housing most of the Fortune 500 companies and major global capability centres. Alongside the growing demand for conventional office space, the need for flexible office space has surged significantly post-pandemic. The city currently boasts about 7.1 million sq. ft. of existing flexible office space. In the first nine months of this year alone, nearly 15,000 flexible office seats were leased. This figure surpasses the annual flexible seat leasing of last year, indicating strong growth from both international and domestic occupiers.
The flexible office space sector is poised to grow further, leading the city’s office leasing activity during the first nine months of 2024, with a 35% share, outpacing the combined share of IT/ITeS and BFSI sectors. During this period, flexible workspace operators leased 2.6 million sq. ft. of office space in the city. Notably around 28% of this space, translating to 0.73 million sq. ft., was in the IT/ITeS Special Economic Zone (SEZ) office buildings which have now been partially or fully demarcated.
What was the need to demarcate Special Economic Zones (SEZs)?
The Sunset Clause for SEZs, effective in 2017, phased out direct tax benefits for developers from that year onwards, followed by occupiers in 2020. This led to reduced incentives for occupiers to lease space in SEZs, resulting in higher vacancies. With the central government's recent notification of Rule 11B, real estate developers have begun floor-wise demarcation in the built-up area of their IT/ITeS SEZ as a Non-Processing Area (NPA) to lease out vacant spaces.
However, there are certain limiting factors, such as the requirement for the processing area to constitute at least 50% of the total SEZ area, a minimum developed area norm of 50,000 sqm for Class A cities, the prohibition of part floor demarcation, as well as the reimbursement of the initial tax benefits received.
Before the demarcation, Gurugram had 17.6 million sq. ft. of Grade A IT/ITeS SEZ office space by prominent developers like DLF, Brookfield Properties, CapitaLand, Tata Realty & Infrastructure Limited and ASF Infrastructure. This demarcation has enabled developers to attract a broader range of occupiers, with flexible workspace providers being one of the top categories. Amidst the growing demand for flexible space and operators anticipating getting listed, prominent players in this sector are keen on expanding their portfolios. This year, flexible workspace operators like WeWork India, Smartworks, Simpliwork and 91Springboard leased space across such buildings in Gurugram. The end-user demand within these centres has remained strong, with tenants like Zomato and Sterlite Technologies leasing over 700 seats each.
Going forward, real estate developers across the city are applying for and are keen on demarcating the NPAs in their IT/ITeS SEZ buildings to utilise vacant areas. Flexible workspace providers are expected to remain the top occupiers of these demarcated spaces, which should help reduce the overall vacancy levels in the city.