Home / Industry / Infotech /  IT companies drive office space demand

Mumbai: Information technology (IT) companies continue to rent and even buy office space in relatively cheap properties that are being constructed away from traditional commercial hubs even as the sector’s profit growth has slowed because of weak demand in its main markets in the US and the UK.

In Mumbai, for instance, the IT services sector has even overtaken the historically dominant financial services sector in office occupancy as office space has expanded beyond south Mumbai, Bandra Kurla Complex and south central Mumbai, according to a February report by real estate consultant Jones Lang LaSalle (JLL).

In 2009, the BFSI (Banking, Financial services and Insurance) sector occupied 48% of total ‘grade A’ office space but more than halved to 21% in 2012. The IT sector, on the other hand, saw its occupancy grow 22% in 2012 compared to 15% in 2011, according to the report.

IT companies are the driving force behind the trend, the report said.

The JLL report states that IT companies are driving sales as demand for quality and affordable office space have been addressed over the past three years with the completion of quality office space in the suburbs and the satellite cities of Thane and Navi Mumbai. Absorption in the city’s suburbs accounted for 1.45 million square metres in 2010, 2011 and 2012 together, which is double (0.71 million square meters) that of the absorption of office space in the island city in the same period.

According to Ashutosh Limaye, head of research and real estate intelligence service for JLL in India, the ‘non-CBD’ (Central Business District) locations are home to around 70% of Mumbai’s office space and will have a major role in determining the performance of the city’s office market.

The commercial real estate market of the National Capital Region (NCR), too, continues to be patronised by IT companies.

According to a February report by real estate consulting company Knight Frank the share of occupancy of IT companies rose 49% in the October-December quarter compared with 12% in the same period a year ago in the NCR region. The increase accounts for 0.66 million square feet of office space.

The manufacturing sector registered the second fastest growth at 22% in December quarter of this fiscal, from 27% a year earlier.

The peripheral business district (PBD) of Gurgaon is one of the most sought after destination in NCR, contributing nearly 43% of this supply, according to the Knight Frank report.

Most IT companies in Gurgaon are concentrated in DLF Cybercity.

Progress on infrastructure initiatives such as the metro has also worked in favour of this micro-market, the report stated, adding that some of the key space occupiers in the December quarter included companies such as Microsoft Corp. India Pvt. Ltd, IBM India Pvt. Ltd and Hewitt Associates (India) Pvt. Ltd.

Approximately 1.35 million sq. ft was transacted in the December quarter which was a 39% drop compared with the same period a year ago, according to the Knight Frank report.

The Knight Frank research revealed that IT companies occupied 67% of the total office space in Bangalore in the December quarter while Pune and Hyderabad accounted for 75% and 80%, respectively.

However, the demand for office space in most of the major cities in India has been restrained in fiscal 2013 due to uncertain global economic scenario and slowing domestic economic growth.

Samantak Das, director, research, at Knight Frank, India, said the demand for office space is expected to fall 17.6% in fiscal 2013 from a year ago. “The office market has bottomed out," he said, adding, “We will see a recovery in the second half of the next calendar year."

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