Currently, US contributes about 40-45 per cent of the total IT/ITeS outsourcing and offshoring business in India and it is the single largest market for India's IT/ITeS business. The real estate sector's growth is fuelled by demand. In India, the demand is derived mainly through shift in global economic conditions. Thus any change in the real economy will have an impact on the physical real estate (construction or ready office space) market. |
The pressure on margins felt by the various companies affected in the US may result in an accelerating trend to outsource all or some of their operations to the likes of India. Therefore, demand levels may be maintained or even grow, although the price sensitivity would increase driven by the cost-cutting approach.
"Given the crunch in the financial markets, many US corporations in the mortgage processing business and financial services are scaling down or even closing their offshoring operations. This, along with the negative outlook for US growth, may curb the demand for office space, resulting in an immediate impact on the real estate market," said Abhishek Kiran Gupta, Senior Manager - Research, Jones Lang LaSalle Meghraj.
"Under the pessimistic scenario that this trend magnifies, the demand slowdown will result in a mismatch with the large volume of supply planned across the seven major cities. This would lead to an increase in the vacancy rate to 9-13 per cent," he added.
In India, the demand for office space has been consistently on the rise since 2001, pushing vacancy levels from a high of 14 per cent in 2001 to a low of 2.9 per cent in 2006. The overall vacancy rate as on Q4, 2007 stood at 3.6 per cent and Grade A office space demand from IT/ITeS across major cities at the end of Q4, 2007 stood at around 125 million sq feet.
Quoting the National Association of Software and Services Companies (Nasscom) statistics, Gupta said the Indian IT/ITeS industry directly employs more than 1.6 million people and indirectly creates employment opportunities in related industries for an additional six million people and as per its projections, IT/ITeS employment to rise by another 1.5 million by 2010. Assuming this to be the base scenario, India will require the development of about 135-150 million square feet of Grade A office space over the next three years."
"The future supply in the form of IT parks, special economic zones and commercial office buildings across the major cities in India, expected to be completed by 2010, measures about 162 million square meters. Under this base case sc-enario, the vacancy rate is expected to rise moderately to between 5 per cent and 8 per cent over the next three years," he added.
