Tech companies driving demand for office space in India

A number of sectors in India have witnessed rapid growth during the post-pandemic era, and a few others are making a steady recovery. Among the growing sectors is the IT industry; several knowledge centers are being set up in India given the availability of new and experienced talent.

Various factors including cost-effectiveness have led to this paradigm shift. Even though the per capita income has risen greatly over the years, India continues to be a cost-effective talent market for global players.

Office absorption by IT/ITES and GCC

Absorption levels were steadily increasing pre-pandemic, with 2019 witnessing leasing of 17.5 million sq.ft. across the top 6 cities, namely Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai and Pune. The pandemic years experienced a slowdown, and leasing picked up once again in 2022 as absorption levels stood at 16.9 million sq.ft. The numbers that came in for Q1 2023 remain robust. It is evident that the technology sector continues to occupy a significant share in total leasing.

Notes: Data pertains to Grade A buildings and top 6 cities – Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai and Pune

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Leasing activity by the IT/ITES sector across major markets

The following table provides a breakdown of office absorption by tech players across the top 6 cities. Bangalore has the highest leasing activity, followed by Delhi-NCR. However, Bangalore and Hyderabad have the largest share of total stock across the major markets. Hyderabad was known to be a pharma and R&D base, but the increasing supply of Grade A developments along with competitive rentals are making the city a favored market for tech players as well. Demand in Pune and Chennai is also being driven by tech companies, followed by BFSI, automobile and manufacturing.

Notes: Data pertains to Grade A buildings and top 6 cities – Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai and Pune

*Stock is classified into IT, SEZ and Commercial buildings and above data pertains to IT space only.

Factors driving demand for GCCs in India

In a wider gambit, tech companies are considering setting up GCCs (Global Capability Centers) in India given the enhanced productivity they offer. There are several reasons for this shift in occupancy pattern. Here are some factors driving this demand:

Cost Optimization: Factors like lower real estate costs, favourable tax structures, lower labour costs, and operational expenses make the investment a wise one. By relocating or establishing operations in the Indian marker, companies can optimize their costs and improve their profitability.

Talent Availability: Setting up GCCs in the right micro markets in close proximity to the talent pool allows the company to find the resources they’re looking for, especially when it comes to technical expertise, research and development, or niche skills.

Market Expansion: Companies often expand their operations to new markets to reach a wider customer base or target specific regions. By establishing GCCs or product-focused centers in these markets, companies can better understand local preferences and meet market needs, thereby capturing a higher market share.

Intellectual Property Protection: GCCs have the potential to protect intellectual property (IP) rights. Intellectual property such as proprietary technology, software, or processes may be better safeguarded by establishing a GCC, which allows for stricter control and security measures.

Increased Control and Flexibility: GCCs are often owned and managed by the parent company, allowing for better alignment with strategic objectives and easier coordination. Product companies, on the other hand, have more autonomy in product development, marketing, and decision-making.

Value Creation: By shifting to GCCs, organizations can focus on creating and delivering higher-value products or services. This shift may involve transitioning from providing generic IT/ITES solutions to developing proprietary products, leveraging advanced technologies, or offering specialized consulting services. The aim is to differentiate themselves in the market and generate higher revenues and profitability.

Innovation: India is a hub for digital talent, with specialised skills in highly demanded technological areas such as IoT, AI, ML, Robotics, etc., making it a preferred hub for innovation and technology. We are among the top 50 most innovative countries in the world.

Conclusion

Quality education in these sought-after fields has led to a large section of the Indian workforce specializing in IT and engineering, causing global IT companies to see high value in setting up business centers and GCCs here, as opposed to earlier times when only backend jobs would get outsourced to India. These companies are even expanding their real estate portfolios into tier-2 cities, driving further growth for the sector. The factors mentioned above are strengthening the investor and occupier sentiment and have projected a positive outlook for the Indian real estate sector.

(By Arpit Mehrotra, Managing Director, Office Services – South India & Head of Flex, Colliers India. Views are personal)