Bengaluru, Hyderabad take up 50% IT office space despite industry blues

Despite global headwinds being experienced by the Indian outsourcing industry, the information technology (IT) space absorption has grown by 10 per cent at 16.81 million square feet (sq ft) area in 2016. More than 50 per cent of this pan-India IT space take up was recorded by Bengaluru and Hyderabad together, according to real estate consulting firm JLL.

Office space demand from them increased from 1.4 million sq ft in 2001 to 15.2 million sq ft in 2015.

“Indian cities are heavily dependent on IT/ITeS (IT enabled services) for job generation and office space demand. Last year, the pace of growth of top technology firms was in single digits due to global uncertainty and technological disruption,” Ramesh Nair, chief executive officer (CEO) and country head, JLL India said on Thursday.

The IT/ITeS accounted for 70 per cent of the total office stock in the country, while it was as high as 88 per cent in Bengaluru. The share of IT in the total office stock in various cities viz. Pune at 81 per cent, Hyderabad at 74 per cent, Delhi at 61 per cent and Mumbai at 55 per cent, according to JLL.

The number of lease transactions saw a 52 per cent growth year-on-year (y-o-y), up from 414 in 2015 to 628 in 2016. Back in 2001, there were only 19 IT leasing transactions. Last year, most of the transactions were recorded in the tech hubs of Bengaluru and Hyderabad, while micro-markets preferred by IT players across Delhi-NCR, Chennai, Mumbai and Pune also saw a good number of transactions, said JLL.

However, the size of these transactions was becoming smaller. The average area leased was slightly over 31,200 sq ft in 2015, but went lower than 27,000 sq ft in 2016. “In percentage terms, this is a reduction of 14 per cent y-o-y and implies that developers need to be ready for designing business parks for smaller requirements. Their focus should change from quantity to quality of tenants,” said Nair.

“The growing transaction numbers indicate that IT companies, which previously preferred built-to-suit office complexes increasingly prefer to lease offices which offer flexibility. Earlier, many Indian IT firms, especially the bigger ones like Infosys and TCS, preferred constructing their own campuses. Now, as the client contracts of many of these companies get shorter, they prefer to lease,” informs Nair.

Many IT firms in India have followed the principle of ‘one dollar real estate cost’ and typically lease quality spaces that charge rents below Rs 65 ($1) per sq ft per month. The top seven cities in the country have been providing spaces to accommodate this strategy. Industry body NASSCOM forecasts that the IT-BPO (Business process outsourcing) sector will account for 10 per cent of the India’s GDP by 2020 and create 30 million direct and indirect jobs, it said.