The Hindu Business Line : Cos turn to need-based leasing of commercial space

‘Gaining ground’
IT, ITES account for nearly 80 per cent of commercial office space
Potential tenants are looking at a 6-12 month projection for renting space

Moumita Bakshi Chatterjee

New Delhi, Dec. 22

Need-based leasing of IT space seems to be ‘gaining ground’ in commercial real estate. For the last few years, IT firms had been maintaining a healthy bench and going aggressive on hiring. This, in turn, meant taking a two-three year view of space requirement, and accordingly inking specific clauses or options with developers to book upcoming space based on business projections.

Real estate consultants now say that with global financial crisis clouding long-term business plans and decision-making, many infotech companies and corporates are favouring a need-based leasing of space or, at best, are taking a one-year view.

“Many companies, including IT firms, are starting to looking at a quarter-to-quarter approach rather than taking a 12-24 month view they would take earlier. Unless these companies get fresh commitment in the form of long-term IT contracts with their clients, I expect them to start taking up space based on the actual requirement,” Mr Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj, said.

Hard & soft clauses

Large tenants, he said, would earlier keep ‘hard’ and ‘soft’ clauses, with the former being definitive agreements to take up space, and the latter more of an option for leasing space over a slightly longer timeframe. “The soft options are out of favour in these extraordinary times,” he pointed out.

A senior official of a large Delhi-based real estate company agreed that potential tenants were looking at a one-year projection when it came to renting space. “It is definitely a more short-term view, and it is logical given the current scenario. The impact of this on real estate developers is not monetary, but more in terms of a reduced visibility in space demand. It is now more about taking a call on future requirement…There is always a risk that one may be left with vacant space,” the official said.

At present, IT and ITES account for nearly 80 per cent of commercial office space.

Reserve space

“Clients are certainly not seeing that far ahead (two-three years) and are focusing on the 6-12 month business plans. As a result, long-term pre-commitments and soft options are on a decline. Also the window on reserve space option (space that is kept-off the market and offered as option to corporates to take up within a specific timeframe) has come down drastically,” says Mr Kaustuv Roy, Director, Tenant Strategies & Solutions at Cushman & Wakefield.

Echoing a similar view, Mr Lakshmi Narayanan, President and CEO of Bangalore-based Real Estate Bank India (REBI), said the outer limit of projection that infotech companies are now willing to take is one year.

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