Commercial realty follows ITeS to tier III cities

The commercial real estate sector has been booming in the last few years, driven by the high demand from corporates, especially IT and ITeS companies. However, with property prices skyrocketing in tier-I and tier-II cities, these companies are now looking at tier-III cities to set up their businesses.

"Wipro and Infosys set the trend by setting up facilities in Mysore and Kochi. Foreign companies are now moving into these cities as well, said Akshaya Kumar, CEO, Park Lane Property Advisors.

Broadly, Nagpur, Ahmedabad, Kochi, Indore, Coimbatore, Mysore and Lucknow come under the tier - III classification. Consider these numbers: the lease rates in Mumbai, in places such as Bandra-Kurla complex is around Rs 250 per sq ft whereas in the suburbs of Andheri, it is between Rs 55 and Rs 110. Compared to this, the lease rates in Nagpur are Rs 20 to 30 per sq. ft. "And the space available is larger too," said an industry observer.

A recent report by Jones Lang Lasalle Meghraj (JLLM Asia Pacific Property Digest - Q1 2007) confirms this. A large number of IT and ITeS companies such as Dell, Infosys, TCS, Wipro and Persistent Systems are moving into these cities in a big way. Said a Dell spokesperson, "Dell has gone to cities such as Chandigarh and Hyderabad, apart from Delhi and Bangalore because they had a potential to support a large-scale facility in terms of public infrastructure and access to manpower."

Besides the lower property prices, these cities also provide skilled labour. Kochi and Nagpur have a number of colleges and institutions imparting professional education. The literacy rates in these cities are as high as 94 per cent and 88 per cent respectively.

As a result, big builders are aggressively getting into these areas. Added Kumar, "DLF, Rahejas and Unitech are scouting for opportunities in these cities because the local builders may not be able to handle large scale projects." For instance, Parsvanath Developers are presently developing a residential project called Prideasia (in association with Chandigarh Housing Board), as an integral part of Rajiv Gandhi Chandigarh Technology Park worth $1 billion (Rs 4100 crore). It will have premium accommodation ranging from one to five bedroom air-conditioned apartments priced between Rs 52 lakh and Rs 3.8 crore.

Sources said Mantri Builders, which is present in Bangalore, Pune, Kolhapur and Sholapur, are planning a 40 lakh sq ft IT park-cum-residential complex in Nagpur. The project is going to be announced in the next two months. The company could not be contacted.

As Abhishek Gupta, Senior Research Manager, JLLM explained, "These cities are entailing business capacities ranging from 200 to 3000 seats, underlying the strategic role that these locations have come to play in the off-shoring of business processes." And that augurs well for the overall economy.