BPO rush driving demand for 'built-to-suits' real estate

In the commercial real estate arena, developers are now delivering "built-to-suits" at a pace which is unmatched even in the more advanced western countries. This is happening across the country, driven largely by the technology services sector.

Built-to-suits are being delivered at a rate of over 1000 square feet per day, which means that a standard 120,000 square feet building for a call centre client can be provided, fully fitted out, in under four months.

Knight Frank, in its commercial report for the third quarter of the fiscal has commented, "this is unheard of even in the west."

According to the consultancy company, one of the factors driving this new phenomenon is the need to provide space for the rapidly burgeoning IT, BPO and call centre sector, where the ability to meet demand on time is a key success factor. This sector makes up for 80 per cent of the total demand for office space in Mumbai.

The forecast is that by the end of 2005, an additional five million square feet of space will be made available for these sectors in Mumbai alone. A new trend emerging is the an increase in lease rentals at Nariman Point in South Mumbai.

At present, office lease rentals in Express Towers are around Rs 115 per sq feet against Rs 90-95 per sq feet a year back. This is expected to increase by 5 to 10 per cent in the next one year as more demand for office space crops up.

Central Mumbai is also expected to see an increase in rentals by 10 to 12 per cent in 12 to 15 months again owing to demand from corporate and high-end IT and ITES sector. There is also expected to be an increase in demand for space in Bandra Kurla complex in the western suburbs.

According to the Knight Frank report, around 3 million sq ft will be ready for occupation by the first quarter of the next year. Incidentally, land prices have increased by 60 per cent in the last one year.

In Delhi over 5.5 million sq ft of office space is expected to be added in 12 months, with Gurgaon alone is responsible for 69 per cent of the estimated supply.

In the capital's centre business district (Connaught Place), rentals are expected to increase in the range of 10 to 15 per cent by end of 2005, though rates will be stable for the next six months owing to lack of fresh supply.

Delhi seems to be the hub for built-to-suit facilities. Those offering such facilities are DLF Universal, Unitech, Vatika among others.

In Gurgaon, for instance, out of the four million sq ft of office space coming up around 20 per cent will be built-to-suit. These types are being leased by developers at an average Rs 28-30 per sq ft.

Current demand in Gurgaon is at the rate of 2 million sq ft per annum. But with demand expected to outstrip supply there might be a fall in retnals of 10 to 15 per cent over six months.

In Bangalore, home to the IT revolution, vacancy rates are in the range of 12 to 15 per cent and over the next 12 months more than four million sq ft of stock will be added.

Here, there is a strong preference for corporate campuses and built-to-suits. Hyderabad is expected to see fresh supply of 3.65 million sq feet in the next one year and some areas are expected to see a dip in lease rentals by 5 to 10 per cent.