Tamil Nadu revises ICT Policy; large scale IT back-offices to choose state on policy revision

A decade after its first release, the Tamil Nadu government has this year revised the Information Communication Technology (ICT) Policy. The policy envisages incubators, start-up accelerators and the promotion of research parks in the state via the Public-Private Partnership (PPP) model.

The Tamil Nadu government is setting up ELCOSEZ, an IT-ITeS Special Economic Zone (SEZ) designed to attract investment, with locations in Chennai, Coimbatore, Madurai, Trichy, Salem, Tirunelveli and Hosur.

“One of the policy's key focus is being abreast with cutting-edge and newer technologies, which is essentially need of the hour. The emphasis on Tier B locations and the incentives promised would be welcomed by a large number of IT/ES firms, if executed as planned. And with Global Investment Meet (GIM) scheduled in 2019, the revised ICT policy could not have come at a better time than now,” said Shaju Thomas, Director, Office Services (Chennai) at Colliers International India.

Colliers International Group Inc. is a global real estate service and investment management company operating in 69 countries with a workforce of more than 13,000 professionals. The company has analyzed details regarding Tamil Nadu’s ICT Policy.

As per Colliers Research, the state GDP is likely to increase as a consequence of this policy implementation, as should IT exports. Based on the data released by the state IT department, IT exports from Tamil Nadu have grown by 8.5% in FY2017-18, compared to 3.3% in FY2015-16. The revised policy is expected to boost confidence and attract IT occupiers over the next five years. The research company expects occupiers planning to set-up back-end IT operations to consider Tamil Nadu.

Colliers Research mentions that the Chennai office market constitutes 55.5 million sq. ft. of Grade A inventory, with an average vacancy rate of 11%. With a new supply of 14.6 million sq. ft. scheduled over 2019-2021, the leasing activity as a result of the new policy initiative is likely to increase over the next couple of years. Since there is a lead time to complete new developments, Colliers expects demand to percolate to Tier II and III cities from 2021 and beyond, however, Chennai will likely continue to be occupiers' first choice for office space.

The policy, if implemented well and as planned, should attract large-scale IT back-office occupiers to the state. About 96% of the total supply in Chennai over the next three years is comprised of IT Buildings and IT-SEZs, offering multiple options to occupiers. The technology sector constituted 70-80% of the total office demand in Chennai during 2015-2017. The dominance of the technology sector is likely to continue with the push from the ICT policy.

“We expect Chennai to remain the front-runner due to the expansion of technology occupiers and we forecast average annual absorption of 4.9 million sq. ft. over 2019-2021. With the given thrust of Tier II cities, we expect real estate demand in other emerging cities such as Coimbatore, Madurai, and Trichy to strengthen,” indicates Collier’s analysis.