Cost cuts: IT companies share in real estate shrinks


CHENNAI/ BENGALURU: The IT services sector is slowing real estate absorption due to a combination of flagging business, adoption of a hybrid work model and reallocation of talent to Tier 2 field offices. However, this gap is being filled by the Global Capability Centers (GCCs) of multinational companies and product companies – companies that are growing in number and seem to value more face-to-face collaboration. GCCs are offshore entities that provide support services such as IT, finance and analytics to their parent organizations.
Data from real estate research firm Anarock shows that the share of IT-ITeS companies (IT-enabled services) in the total office space in the seven major cities fell by about 24% in the first quarter of 2023, compared to 42% in 2019. At the same time, there has been an increase in the proportion of GCCs. “Over 200 million square feet of commercial stocks in India are currently occupied by GCCs and 500 new multinationals are expected to enter India and set up centers of excellence,” Anarock Chairman said Anuj Puri called.

Among IT services companies, Cognizant has been the most aggressive in trying to lower real estate costs. At an investor conference, Cognizant CEO Ravi Kumar said he plans to cut 80,000 seats in major cities and turn some of them into Tier 2 cities. “The hypothesis is that not everyone will go back to physical labor,” he said. major in real estate DLFIn its conference call last week, Cognizant said Cognizant had given up 30-35% of the acreage (with DLF) in Chennai over the course of a few years.
Analysts say real estate savings are a key margin lever for IT companies in the current subdued environment. For IT companies, real estate accounts for 15-20% of costs. “Real estate accounts for a large part of RTD costs and customers expect lower or flat costs to make the business model attractive.” Phil FershtCEO of IT consulting firm HfS Research, said.
Ritesh Sachdev, SVP and head of commercial leasing and asset management at Tata Realty and Infrastructure, said IT firms used to have 30-40% extra real estate for their bank strength, but that’s no longer necessary. Ritwik BhattacharjeeChief Investment Officer of Embassy REIT, said that office demand in India today is being led by global captives.
Anarock’s Puri also noted less reliance on traditional IT players. The “China Plus” sentiment has created opportunities for manufacturing and industrial segments, and the real estate absorption share of these two sectors has more than doubled, he said.

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