The Indian REITs Association (IRA) commended the government's decision to permit the allocation of a portion of the built-up area within Special Economic Zone (SEZ) units for non-processing purposes. The IRA, comprising founding members such as Brookfield India Real Estate Trust (BIRET), Embassy Office Parks REIT, Mindspace Business Parks REIT, and Nexus Select Trust, believes that this decision will contribute to the occupancy of vacant office spaces within SEZs across major cities. The IRA sees this as a positive development that will stimulate growth in India's office Real Estate Investment Trust (REIT) market.

According to the association's statement, the new regulations, implemented through a key amendment to SEZ Rules, 2006, allow for partial and floor-wise conversion of processing areas to non-processing zones. Currently maintaining an occupancy rate of approximately 80 percent, the SEZ portfolios across REITs are expected to experience an elevation in occupancy levels, particularly in Grade A Business Parks, due to this recent amendment.

The amendment also enables the utilisation of non-processing areas within these SEZs for establishing businesses operating in the IT/ITeS sector, providing an additional boost to office demand, according to IRA. The founding members jointly express their support for this positive development, emphasising its potential to enhance demand in the Grade A commercial office spaces driven by the needs of Global Captive Centres and domestic businesses.

The IRA sees this amendment as strengthening India's appeal as an investment destination and paving the way for the continued growth of Indian Office REITs. Out of the four listed REITs in India, Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust are backed by office assets, while Nexus Select Trust is the country's first retail-asset-backed REIT.

However, since 2020, vacancies across SEZs in the top six cities have been on the rise, currently reaching about 20%, according to Colliers India. The removal of direct tax benefits for new units in SEZs in March 2020 diminished their appeal, leading to occupiers' exits and relocations to non-SEZ office spaces. As a result, the share of leasing for SEZ spaces in overall office leasing declined from 22% in 2019 to 14% in 2022 and further to 7% during January-September 2023, as reported by the consultant.