“SEZ is a little concerning in the market because of the sunset clause. There is a little pain I would say for the next few months, but I don’t see it lasting for long,” Sriram Khattar, managing director, rental business, DLF, said during Q4 FY23 earning calls. The SEZ portfolio of DLF has maintained a vacancy of 15%, whereas vacancy in the non-SEZ portfolio has dropped down to only 6%. According to a report by ICICI securities, since January 2023, global macro headwinds in the form of rising interest rates and tech MNC hiring slowdown have led to a slowdown in large leasing decisions for now.
Further, delayed implementation of the DESH Bill along with fresh exit notices for FY24 by a few large tenants in January-March 2023 period has dampened the mood further. “As a result, all the office REIT managers – Embassy, Mindspace and Brookfield – have refrained from giving distribution guidance for FY24 given the uncertain near-term outlook. While REITs may underperform in near term, the very factors which are driving this underperformance may reverse from FY25,” ICICI securities has said in the report.
One of the reasons for this will be conversion of SEZ to non-SEZ space. “The DESH Bill provisions are aimed at enabling developers to attract a new set of tenants to SEZs. The Bill is critical for occupiers in the SEZ zones as they would be looking for some clarity in cases of expiring leases, while developers may have to deal with rising vacancies in case of further lag. Any form of clarity on Bill movement and specific clauses will help occupiers plan future leases while allowing developers to think about the future course of action to sustain occupancies,” said Anshuman Magazine, CEO, India, South-East Asia, Middle East & Africa, CBRE.