The slowdown in the US and European economies has led to a further slowdown in office leasing decisions in India, especially large spaces of 5 lakh square feet and upwards including global capability and innovation centres (GCCs and GICs).

Landlords in India are seeing demand among grade A stock for smaller spaces in the region of 50,000 to 200,000 square feet as there is a capex freeze with regard to investment in larger GCCs and GICs and this situation is expected to prevail at least for the next 2-4 quarters. In an earnings call last week, Mindspace Business Park’s CEO Vinod Rohira said that large RFPs (request for proposals) were not there.

GCCs or GICs, are offshore units of MNCs that are responsible for providing various support services, such as IT, finance, human resources, and analytics, to their parent organizations. Over the years they have evolved to become centres of operational excellence, product development and innovation hubs.

There are over 1,800 GCCs in India employing close to 1.5 million people.

GCCs have become a critical component of overall office leasing in India. For instance for Embassy Office Parks REIT more than half of its rentals are accounted for by GCCs. On a pan-India basis GCCs occupy more than 200 million square feet (msf) of Grade A stock across the top six cities. Bengaluru is a favoured destination for GCCs with about 42 per cent share in total leasing by such centres.

The reduction in COVID cases in 2022 resulted in a spike in GCCs and around 100 such centres were set up during the year, of which 66 were new and 30 were new centres set up by existing companies. Industry body NASSCOM has said that 500 more such centres will be set up in the country in the next three years.

However record inflation rates in the US as well as major European economies, the spate of banks going belly up, the increasing chatter on the US defaulting on its debt commitments, the spate of layoffs by technology giants and other companies, has led to a lot of multinationals hitting the pause button on fresh investments on increasing headcount and spending on office space. While Amazon, Accenture, Meta, and Google have vacated office spaces in the recent past as they laid of thousands of jobs, Cognizant has said it will give up 11 msf of office space in India over the next three years to drastically cut costs.

Office lease rents in India are among the lowest in the world at just over $1 psf per month, compared to $6.6 in nearby Singapore, $5.5 in Beijing and $4.2 in Shanghai. Therefore it is not the rentals but the uncertainty in the western economies that has slowed down the momentum. Embassy REIT’s CEO Vikaash Khdloya said that while discussions on large RFPs were taking place, deal sizes were narrowing as “there is caution on capex spends at headquarters level globally and hence the decision making is taking time.”

The distress in the US-based companies looks likely to linger as most large tech companies have guided for weaker quarters than Street estimates.

Optimism ahead

There is, however, optimism ahead. JLL India’s head of office leasing Rahul Arora said that growth in GCCs and GICs usually come in the back of slowdowns. He said that while there was a slowdown globally, there was a lot going for India that would ensure a revival in the near future. He said that companies were taking to figure out their investment strategies, especially since most economies are still on the recovery path from COVID.

“My sense is that in the next couple of quarters we will again see a surge in such requirements.”

He said that in the meantime momentum would be sustained by smaller occupiers who were also of high quality and willing to pay the price that landlords were asking for.

“The focus remains on small and medium sized deals,” said Khdloya, “and we are pretty happy with that.”

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