The management of Mindspace Business Parks REIT is unfazed by Cognizant’s intention of giving up 11 million square feet of office space in India as it has enough customers in the pipeline, though smaller, who can take up the slack.
“We don’t get perturbed by all this,” said Vinod Rohira, chief executive officer of Mindspace REIT. He said that such decisions taken by big technology companies were part of their business strategies during a slowdown and when business bounced back, they would return and quickly ramp up with leasing requirements. Cognizant is a large tenant of Mindspace REIT and accounts for 4 per cent of its gross contracted rentals, after Accenture.
On Thursday Nasdaq-listed Cognizant said that to reduce costs it would give up office space mostly in large Indian cities over the next three years. In the recent past several other global companies have also surrendered office space in India. Amazon has given up 2-3 msf in the last one year while Accenture has vacated 3.4 msf of office space.
Rohira said that such churns were to be expected and the REIT’s focus was on building quality assets and watch out for mark-to-market opportunities. He said that as yet there were no indications of Cognizant vacating its office space with them. He added that if any such situation arose, they were ready as third-party service providers, with smaller office requirements, were always looking for space.
With the US and European economies currently in a slowdown with high inflation rates and a crisis brewing amongst their banks, there is a capex freeze on large global capacity centres and innovation centres. “But we are seeing a lot of third-party service providers, especially in the financial services sector, getting additional demand for seats to service and those players are taking up a lot of space in the last couple of quarters.” He said demand was also coming in from companies who were undertaking cutting-edge technology work for 5G and related equipment.
While requests for proposals for larger space are still not there and are not expected to be for the next 3-4 quarters, there is demand from those looking for space of 50,000-150,000 square feet.
Over 46 per cent of Mindspace REIT’s tenants are from the technology sector and the global slowdown has had an effect with the re-leasing spread in FY23 slipping to 26.3 per cent from 31 per cent year ago. The committed occupancy has also moved up 470 bps on year to 89 per cent.
The volatility in the market has also resulted in its sponsor, K Raheja Corp deferring the sale of its building Commerzone Raidurg in Hyderabad, on which the REIT has right of first offer. The building is completed with 1.8 msf already leased to Qualcomm. Rohira said that the transfer of the property into the REIT was just postponed, and the transaction was very much in the offing. “We will wait a little more for the markets to improve before we take in the asset.”
Mindspace REIT reported a net operating income of ₹1,710 crore in FY23, up 13.2 per cent on year while revenue rose 16.6 per cent to ₹2,068.5 crore. Distribution rose 3.8 per cent on year to ₹19.10 per unit. It added over 30 tenants while in-place rents rose 5.7 per cent on year to ₹65.2 per square feet per month.