Mumbai SEZ leasing rises sharply in 2024, reverses 3-year downward trend

After a three-year downward trend, leasing activity in Mumbai’s special economic zones (SEZs) has witnessed a strong revival in 2024. The surge in demand comes as the government introduced floor-wise denotification for SEZ buildings, offering landlords greater flexibility amid ongoing uncertainties surrounding the future of SEZs, according to a report by Moneycontrol.

 

The decline in SEZ leasing in recent years had been largely driven by the government’s sunset clauses, which phased out tax benefits, making these zones less attractive to potential tenants. However, in the first nine months of the ongoing financial year, leasing activity in SEZ-notified buildings within the Mumbai Metropolitan Region (MMR) climbed to approximately 1.42 million square feet — significantly higher than the 830,000 square feet recorded in 2023, the report said, citing data from real estate consultancy Cushman & Wakefield (C&W). 

   

It is projected that by the close of 2024, SEZ leasing in the region will reach 1.8 million square feet, surpassing pre-pandemic figures.

 

Real estate trusts driving recovery in Mumbai SEZ 

The resurgence has notably benefited real estate investment trusts (REITs) that own substantial SEZ assets in key micro-markets such as Airoli, Ghansoli, and Powai. The report said that Mindspace Business Parks REIT, which manages an extensive portfolio in Airoli, reported a significant uptick in leasing activity. Meanwhile, CapitaLand India Trust, backed by Singapore-based CapitaLand, has experienced growing demand for its SEZ office spaces in Ghansoli. In Powai’s Hiranandani Gardens, Brookfield India Real Estate Trust has also seen robust leasing interest in its SEZ-designated buildings.

 

According to C&W data, the shift toward partial denotification has played an important role in boosting demand. This policy, implemented in December 2023, allows up to 50 per cent of a building’s built-up area to be converted to Domestic Tariff Area (DTA), which operates under standard commercial regulations rather than SEZ rules. 

 

Policy hurdles and legislative stalemates 

The shift to partial denotification came after efforts to replace the Special Economic Zones Act, 2005, with the Development of Enterprise and Service Hubs (DESH) Bill stalled. The proposed bill faced objections from the NITI Aayog over customs-related provisions, and several state governments raised concerns about constitutional conflicts related to federal powers. As a result, the government opted for a less disruptive approach, amending existing SEZ norms to allow more flexible usage.

 

While leasing activity has picked up, vacancy rates in SEZ-notified buildings remain higher than the overall market average, the report said. During the July-September quarter, SEZ vacancy levels stood at 18 per cent, compared to a 16 per cent average across the MMR. Nevertheless, this marked a significant improvement from 2023, when vacancies in SEZ buildings were as high as 22 per cent.

 

The report highlighted that technology companies as the largest contributors to the demand for SEZ spaces in MMR. Professional services firms have also increased their footprint in these zones, alongside rising interest from Global Capability Centres (GCCs). This sectoral diversity has added momentum to the recovery of SEZ leasing.