Software majors such as Accenture, Cognizant, Google and Infosys continue to lock in large office spaces across the country even though most these firms are not hiring so many people.
Total absorption of Grade A office spaces was 8.5 million sq ft during the quarter ended March, 20% more than a year ago, and technology sector accounted for nearly 70% of that, according to property advisory firm Cushman & Wakefield.
"There is visibly increased leasing activity and appreciation of rent along with commercial terms. This is likely to continue as demand seems robust," said Sanjay Dutt, executive managing director of Cushman & Wakefield in South Asia. "Also, with the change in global outlook towards India, we can look at hitherto stalled or delayed plans of global companies coming to India materialising," he said.
Among cities, Bengaluru, Chennai, Kolkata, Mumbai and Pune showed most notable increases in office space absorption. Oracle recently inked a 400,000 sq ft space at JP Nagar in Bengaluru while Wipro is looking to expand capacity in cities like Chennai, Hyderabad, Delhi and Pune over the next two years.
Bengaluru - headquarter to multinational and domestic companies like SAP LABS, Accenture, Infosys and Wipro - saw a whopping 500% increase in absorption rate in 2014.
"Cities like Pune and Bangalore are the preferred hub for the IT companies, as they offer retainable manpower and infrastructure support. These development are creating job opportunities that in turn increases the potential of residential spaces in these cities," said Shashank Paranjape, MD of Paranjape Schemes (Construction). Paranjape Schemes has completed 1.5 million sq ft of commercial space in second phase of its BlueRidge SEZ Project near Pune and Mumbai, which will be operational from June.
In December, property fund Ascendas India Trust agreed to buy this phase for Rs 640.5 crore. Some companies are buying large plots of land, given that real estate prices are likely to be much higher 3-5 years down the line and shortage of Grade A office space. As a result, many top technology companies are locking plots in blocks and leasing larger spaces to capitalise on current market prices.
According to Cushman & Wakefield, 13.36 million sq ft commercial space was deferred at the end of 2014 in Mumbai, Delhi-NCR, Pune, Chennai and Hyderabad. Google is setting one of its largest facilities globally in Hyderabad with a built up space of about 2 million sq ft. The new facility will help the company double its headcount in Hyderabad to 13,000 employees over the next four years.
Infosys has also proposed a significant expansion of its operations in Bengaluru, adding about 21,500 seats at the Electronics City software hub, where it owns an 80-acre campus. If the plan fructifies, it will make Karnataka's capital the biggest centre for the company, surpassing Pune.
Infosys employed 1.76 lakh people, of whom 34,431 were in Bengaluru and 37,115 in Pune as on March 2015. The software firm has a 15-acre land bank at Electronics City phase I. Cognizant Technology Solutions has also leased 0.64 million sq ft in Hyderabad, while TCS is taking up 0.9 million sqft in NCR and Accenture leasing 0.35 million sq ft in Pune.
The rapid expansion plans of top IT companies in India comes at a time when hiring in India's $146 billion information technology industry is at an all-time low, reflective of the rapidly changing technology landscape that is disrupting traditional IT services firms and forcing them to take a fresh look at their traditional business model of hiring large armies of engineering graduates to earn every billion dollar of revenue.
"We are not hiring in as large numbers as we used to in the past, but as long as demand for traditional services continue, we will always keep hiring, expanding and acquiring new plots," a senior executive of a major IT firm said on condition of anonymity.
Having said that, companies such as Infosys and Wipro are still hiring thousands of graduates every year, given that more than 90% of their overall revenues come from traditional areas of software services that requires large manpower.
Infosys alone plans to hire between 25,000-30,000 graduates from India's top engineering colleges this financial year. Yet, the pace of hiring in the information technology industry, one of India's largest job creators, is set to slow in the coming years.
Industry lobby Nasscom estimates the sector to create 30,000, or 13%, less jobs in fiscal 2016 compared with this year, as new technologies make many roles redundant and companies improve efficiency as clients demand more bang for the buck.