Small cities to ride IT-BPO wave

Tier-II cities next favoured destination of IT firms.

Piggy-backing on the booming ITES-BPO sector, real estate analysts are projecting a massive growth in second and third tier cities across India. Besides known IT destinations, cities like Chandigarh, Coimbatore, Vishakhapatnam, Kochi and Jaipur are now being looked at as potential IT destinations.

Chandigarh alone is estimated to have 5 million sq ft of IT space under construction. While Infosys is planning a campus in Le Courbousier's magnum opus, GE is eyeing the Pink City given its closeness to Gurgaon.

The Pink City has also begun to figure on the radar of realty venture funds who are looking for good entry points into a heated market. Nagpur just attracted a Rs 300 crore investment from the Mumbai-based Krishna group of industries, who bought the historic Empress Mills and plan to convert it into a mixed use complex with an IT Park, luxury residences, a five-star hotel and a shopping mall.

The last few months, IT majors such as IBM, Dell, Cognizant, Mphasis and Satyam have unveiled plans for cities like Coimbatore, Mangalore, Chandigarh and Vizag. Wipro and TCS have acquired land at Vizag, while Honeywell is looking at expanding operations in Madurai.

Satyam has started work on its 50 acre campus in Vizag and is establishing a technology centre on seven acres at Thotlakonda on the outskirts.

Mphasis has invested Rs 70 crore in a BPO unit at Mangalore. Wipro and TCS have also set up shops in Kochi and Thiruvananthapuram. Says Anshuman Magazine, managing director of CB Richard Ellis, "There is a clear indication that other states are seriously working towards grabbing a share in the booming ITES sector. Bangalore's success has set a great example for the other states to follow, and has initiated a healthy competition between the states."

Jaipur for instance is attracting investments from not only developers but also private realty funds like the Anand Rathi Venture Funds. Says Sumit Anand, CEO of AR Venture Funds, "We will be looking at smaller two tier cities like Jaipur as we believe they will yield more than the metros."

Mumbai based developer, BSEL Infrastructure plans to invest Rs 100 crore in a mixed use property in the city. Says company president Shashank Joshi, "As new enetrants into the realty business we can't afford to buy land in south Mumbai or Delhi."

One of the reasons for IT companies moving away from the metros is the high rentals rates in metros.

Internationally, IT companies prefer to keep their rentals lower than $1 per sq ft, but with rentals in the metros beginning to close in, moving to smaller cities looks more feasible, says Anuj Puri of Chesterton Meghraj.

For instance, rentals in the Bandra Kurla complex in Mumbai, have risen to Rs 115 per sq ft with total occupation cost going up to Rs 153 (nearly $3 per sq ft). Compared to this, rentals in Hyderabad range around Rs 34 per sq ft with total occupation costs going up to Rs 64 per sq ft.

While no confirmed firgures are available, rentals in cities like Jaipur is said to be around a Rs 20-25 per sq ft. Analysts point out that these developments are a pointer to the next stage of the IT boom.

"For years, India's software and outsourcing services have been centered in a few hubs. The spread of IT and IT-enabled services to smaller towns will change that, as this revolution reaches out to the 300 million-strong middle class, one of the world's most attractive emerging markets. This will create thousands of new jobs, new education opportunities and possibly make local governments more technology-savvy," says Magazine.
WHO'S GOING WHERE

• Mangalore - Mphasis
• Vizag - Satyam, Wipro, TCS
• Madurai - Honeywell
• Chandigarh - Infosys
• Jaipur - GE
• Kochi - Wipro
• Thiruvananthapuram - Infosys
• Coimbatore - IBM, Dell