Real Estate

As IT sector works from home, commercial realty set to be hit hard

Venkatesh Ganesh Mumbai | Updated on May 04, 2020

As IT-ITeS employees work from homes, demand for office space and employee transportation is expected to take a significant hit.

India’s 15 million workforces connected to the IT-ITeS sector could witness a dramatic impact on their livelihoods. Tech companies that BusinessLine spoke to pointed out that on average, spends on real estate, employee transport, and catering could go down by 30 per cent.

This could be due to a combination of new WFH norms as well as cost-cutting measures.

Recently, TCS CFO V Ramakrishnan told BusinessLine that some spending (such as facilities, transportation, catering) could come down over a period of time.

“Instead of the way we look at it, spending will go into collaboration and other kinds of productivity tools. We see some portfolio rejig of costs,” said Ramakrishnan. TCS has publicly stated that at any point in time, around 75 per cent of its 4.5-lakh workforce will operate out of remote locations.

Similarly, Wipro has changed the working arrangement so its support employees based in India can work from home, and has started enabling the 1,65,000 billable client-facing employees to work from home.

Capacity reduction

Already, State governments such as Karnataka have notified that wearing of masks, social distancing, and other measures should be followed strictly. Social distancing could reduce office demand by nearly 30 per cent, said Lohit Bhatia, President, Indian Staffing Federation. Head honchos like CEO of Hexaware, R Srikrishna, are of the view that commercial real estate is dead. “There is enough capacity for the next decade,” he said.

For years, commercial real estate space in India grew as IT/ITES companies gobbled up space consistently, with 37 per cent demand coming from this sector. According to a JLL-CII report, Bengaluru absorbed 6.5 million sq ft of office space in 2019, ahead of other cities. In the Asia Pacific, office leasing by technology firms increased by 30 per cent annually to cross 47 million sq ft during the first three quarters of 2019, according to CBRE.

All of this will change. “The impact of social distancing will imply larger allocation of space per employee and possibly require higher real estate, which will get compensated by a drop in rate per square foot,” said Monesh Dange, Partner & National Leader, Advisory Markets, EY India.

Related effects

It is not only real estate space but even other ancillary businesses such as employee transportation and catering. That are bound to take a hit. “WFH will reduce the travel time of employees, which in turn would lead to a marked reduction in office space, spend on fleet operations and catering,” said Rajiv Ahuja, President, Startek (formerly Aegis BPO), which has 47,000 employees in 13 countries.

Transport costs could go down by 30 per cent, as only a reduced workforce needs to be transported, stated Bhatia. This is will be driven by social distancing norms. “Per vehicle employee capacity will go down, and this will impact logistics providers,” said Dange. Catering could shift to more households rather than offices.

The rebalancing of spends will likely be on providing better Internet connectivity, laptops and cybersecurity. Companies on average spend 22-25 per cent of their revenues every year in these areas. Sonica Aron, Managing Partner, Marching Sheep, an HR firm is of the view that cost-cutting measures will be augmented by strengthening of IT infrastructure, security protocols.

Published on May 04, 2020

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