Cost-cutting: IT companies’ stake in real estate shrinks – Times of India

CHENNAI/BENGALURU: The IT services sector is slowing down on real estate absorption due to a combination of weak volumes, adoption of hybrid work model and reallocation of talent to tier-II satellite offices. However, that shortfall is being taken up by the Global Competence Centers (GCCs) of multinationals and product firms – companies whose numbers are on the rise and which seem to be getting more particular about in-person collaboration. GCCs are offshore entities that provide support services such as IT, finance and analytics to their parent organizations.
Data from property research firm Anarock shows that the share of IT-ITeS (IT-enabled services) firms in total office space in seven major cities declined to around 24% in the first quarter of 2023 from 42% in 2019. Part of GCC. The GCC currently occupies over 200 million sq ft of commercial stock in India and 500 new multinationals are expected to enter India and set up capability centres, said the Anarock chairman. Anuj Puri Said.

Among IT services firms, Cognizant has been the most aggressive in its effort to cut down on fixed asset costs. At an investor conference, Cognizant CEO Ravi Kumar said they plan to reduce 80,000 seats in big cities, and a part of this is to redeploy to tier-II cities. “The hypothesis is not everyone’s going to come back to physical work,” he said. real estate major DLFCognizant had said in its earnings call last week that Cognizant has given up 30-35 per cent (along with DLF) space in Chennai in a few years.
Analysts say realty savings are an important margin lever for IT companies in the current slowdown environment. Real estate accounts for 15-20% of the cost of IT majors. “Real estate is a large component of FTE cost and clients expect low or flat costs to make the business case attractive,” Phil Fershtsaid the CEO of IT advisory HFS Research.
Ritesh Sachdev, SVP and Head of Commercial Leasing & Asset Management at Tata Realty & Infrastructure, said that IT firms earlier used to have 30-40% additional real estate for their bench strength, but today it is no longer required. Ritwik BhattacharyaIndian office demand today is led by global captives, said the chief investment officer of Embassy REIT.
Anarock’s Puri also saw less dependence on traditional IT players. He said the spirit of ‘China Plus’ has created opportunities for the manufacturing and industrial sectors and the share of real estate absorption by these two sectors has more than doubled.