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IT-ITeS sector leased 10% more office space in 2016, says JLL

Business Standard:  June 09, 2017

Mumbai:  Office space absorption by the information technology (IT) and IT-enabled services (ITeS) companies rose by 10% to 16.81 million square feet (sq ft) in 2016 over the previous year, with Bengaluru and Hyderabad together accounting for more than 50% of this space take-up, according to a report by JLL India.

Office space demand from these companies had increased from 1.4 million sq ft in 2001 to 15.2 million sq ft in 2015.

The transaction sizes, however, are becoming smaller — the average area leased was slightly over 31,200 sq ft in 2015, which went below 27,000 sq ft in 2016. ”In percentage terms, this is a reduction of 14% (year-on-year) 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 Ramesh Nair, country head & CEO, JLL India.

The number of lease transactions saw a 52% growth year-on-year, going 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.

“The growing transaction numbers indicate that IT companies, which previously preferred built-to-suit office complexes, increasingly prefer to lease offices that 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,” Nair said.

Many IT firms in India follow the principle of ‘one dollar real estate cost' and 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 sector will account for 10% of India’s GDP by 2020 and create Rs 30 million direct and indirect jobs, he said. 

“Last year, however, the pace of growth of top technology firms was in single digits due to global uncertainty and technological disruption. The office space requirements of technology and outsourcing firms - particularly those engaged in software development - also slowed down,” Nair said.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.