Bangalore: Office rentals in Bangalore are expected to decline in the coming months as software and BPO companies look at special economic zones (SEZs) to safeguard tax incentives they currently enjoy under a scheme which is due to expire in March 2009.

The anticipated move by these companies, which occupy the bulk of commercial office space in the city, is being triggered by the scheduled expiry of the software technology park (STP) scheme. The lack of clarity by the government on this issue adds oil to the fire. Thirteen SEZs have been approved in Karnataka, 11 of them in Bangalore.

It is estimated that the IT sector in Bangalore employs around six lakh people and occupies about 100 million sq ft. Three-fourths of this is taken on lease. "If the tax holidays as per the STP scheme cease, prices in all likelihood will witness a decline. However, there is no clarity on the quantum of correction," said Kaustav Roy Cushman & Wakefield India Director (tenant strategies & solutions).

The companies scaling up operations in the last six to eight months have shown a preference to move to SEZs, Roy said. Smaller companies, however, are expected to remain within STP units, he said.

Office space rentals have risen steadily in Bangalore during the last few years - from Rs 22-42 per sq ft in March 2004 to Rs 48-78 per sq ft at present.