Many sectors in India have seen rapid growth in the post-pandemic era, with several others recovering steadily. Among the growing sectors is his IT industry. In India, several knowledge centers have been set up to attract experienced recruits.
Various factors such as cost-effectiveness caused this paradigm shift. Despite significant increases in per capita income over the last few years, India remains a cost-effective talent market for global companies.
Office absorption by IT/ITES and GCC
Absorption levels have increased steadily since pre-pandemic, with 17.5 million square feet rented in 2019. It covers the top 6 cities namely Bangalore, Chennai, Delhi NCR, Hyderabad, Mumbai and Pune. After a slowdown during the years of the pandemic, rentals picked up again in 2022 with absorptive levels of 16.9 million square feet. Q1 2023 numbers remain strong. It is clear that the technology sector continues to have a large share of total leasing.
Note: Data refer to Grade A buildings and Top 6 Cities – Bangalore, Chennai, Delhi NCR, Hyderabad, Mumbai, Pune
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IT/ITES sector leasing activity in key markets
The table below shows the breakdown of office absorption by tech firms in the top six cities. Bangalore has the most rental activity, followed by Delhi-NCR. However, Bangalore and Hyderabad have the largest share of total inventory across major markets. Hyderabad has long been known as a hub for pharmaceuticals and R&D, but a growing supply of Grade A developments along with competitive rental properties has made Hyderabad a favored market for high-tech companies as well. . Demand in Pune and Chennai is also driven by technology companies, followed by BFSI, automotive and manufacturing.
Note: Data are for Grade A buildings and the top 6 cities – Bangalore, Chennai, Delhi NCR, Hyderabad, Mumbai and Pune.
*Stock is categorized into IT Buildings, SEZ Buildings and Commercial Buildings and the above data is for IT Space only.
Factors Driving Demand for GCC in India
More broadly, tech companies are considering setting up a GCC (Global Capability Center) in India for productivity reasons. There are several reasons for this change in occupancy patterns. Some factors driving this demand are:
Cost optimization: Factors such as lower real estate costs, favorable tax regimes, lower labor costs, and operating costs make investment prudent. By relocating or establishing a presence in India, companies can optimize costs and improve profitability.
Securing Talent: By establishing a GCC in the right micromarket close to the talent pool, companies can find the resources they are looking for, especially in terms of technical expertise, R&D, or niche skills.
Market expansion: Companies often expand their operations into new markets in order to reach a wider customer base or target specific geographies. By establishing his GCC or product-focused centers in these markets, companies can better understand local preferences and meet market needs, thereby gaining a higher market share. increase.
Intellectual property protection: GCC may have intellectual property (IP) rights. Intellectual property such as proprietary technology, software and processes may be better protected by establishing a GCC, allowing for tighter controls and security measures.
Increased control and flexibility: GCCs are often owned and managed by their parent company, which makes them more aligned with strategic objectives and easier to align. Product companies, on the other hand, have more autonomy in product development, marketing, and decision-making.
Value creation: By moving to GCC, organizations can focus on creating and delivering higher value products and services. This transition may include moving from providing general IT/ITES solutions to developing proprietary products, leveraging advanced technology, or providing specialized consulting services. The aim is to differentiate in the market and generate higher revenue and profitability.
innovation: India is a hub of digital talent with specialized skills in in-demand tech areas such as IoT, AI, ML and robotics, making it the hub of choice for innovation and technology. Our country is among the top 50 most innovative countries in the world.
Conclusion
High-quality education in these popular fields has led to a large portion of the Indian workforce becoming specialized in IT and engineering, as opposed to before when only back-end jobs were being done. IT companies have come to see high value in setting up business centers and GCCs in India. It will be outsourced to India. These companies have expanded their real estate portfolios into Tier 2 cities, driving further growth in the sector. The above factors strengthen investor and occupier sentiment, predicting a positive outlook for the Indian property sector.
(Arpit Mehrotra, Managing Director, South India Office Services and Head of Flex, Colliers India. Views are personal)
