The IT sector slowdown: A blessing in disguise for Indian real estate?

Tech companies slashing the workforce in the US has been making headlines for quite some time. The trend is being witnessed even in companies like Amazon ideally considered to be relatively stable than other players in the Silicon Valley. IT companies have played a key role in the sales of premium office spaces as also residential spaces hence a slowdown implies a volatile period ahead for the real estate sector. Real estate investors in India are losing sleep over this development and are worried about the cascading impact it will have on the Indian real estate sector. However it is reassuring to know that such fears may be misplaced. Anuj Puri, Chairman, ANAROCK Property Consultants Private Limited points out that earlier a similar development had turned out to be a blessing in disguise for India. “The slowdown in the IT sector in the US has painted a grim picture and investors are genuinely worried. Previously when the big tech indulged in a similar practice to contain cost, their business continuity plan saw India take the lead. This in turn resulted in demand for Indian software professionals as also a better demand for office spaces in India. This time around too a similar development is expected. Moreover, metro cities will be back in reckoning for office space as companies are getting people back in office from Tier I and Tier II cities.” Recently at the Bengaluru Tech Summit Infosys Co-Founder, Kris Gopalakrishnan made a statement which validates the fact that the IT sector in India is poised for growth as opposed to what is being witnessed abroad. He said despite the obstacles, the IT sector will expand, create jobs, and hire two lakh people in the short term. He also noted that the industry is anticipated to grow at a rate of 8 to 10 per cent, which was not a negligible rate of growth given the $220 billion base. Apart from the slowdown in IT, the ongoing Russia Ukraine situation too has created a worrisome situation too for few. Allaying such fears Raksha Ramaiah, Director of MS Ramaiah Developers & Builders (MSRDB) says “The ongoing Russia-Ukraine war and the economic slowdown have increased uncertainties. However, if we look at India, the country has emerged as a bright spot on the world map and is navigating through economic challenges well, as per Morgan Stanley, India is set to become the third largest economy by 2027.” Speaking on the impact slowdown in IT he is quick to add “The sector even during the pandemic registered a strong performance, now the companies are bringing their workforce back to offices. Many MNCs are planning to start operations in India which has boosted the demand for Grade-A office spaces. The startups are booming which is further causing a demand boost in commercial real estate across locations. According to data from CBRE, over the past nine months, India’s office sector has absorbed 42.1 million sq ft, registering a growth of 66 percent Year on Year (Y-o-Y). The impact of the IT slowdown will be short-term, minimum, and commercial real estate will maintain its robust growth in 2023 as well.” The IT sector's impact on demand for quality commercial and residential properties has been profound. However it is equally important to take note of other avenues which have the power to mitigate the effect of the slowdown “There isn’t much impact visible on the global economic headwinds on the take of commercial spaces. On the contrary 2022 has proven to be one of the best years for leasing of office spaces which is likely to cross the 50 million sq ft mark.” says Subhankar Mitra, Managing Director, Advisory Services, Colliers India. He adds “While the average vacancy has fallen to 16 per cent, the gross absorption grew by 92 per cent on a Y-o-Y basis. Tech companies typically consume half of one-third of all leased-out spaces. They were a little slow this time but the effect got neutralised by the aggressive expansion of flex spaces. Apart from office spaces, residential, warehousing, hospitality and retail all witnessed robust growth in 2022 on the back of large pent-up demand and shortage in supply.” Executive Summary Even though tech companies were moving at a slower pace any effect it might have had on real estate was mitigated by the aggressive expansion of flex spaces. Apart from office spaces, residential, warehousing, hospitality and retail all witnessed robust growth in 2022 on the back of large pent-up demand and shortage in supply. Going forward on a base of $220 billion, the IT industry is predicted to develop at a rate of 8 to 10 percent which is a significant increase. To cater to this growth, the sector will expand, create jobs, and hire two lakh people in the short term. This in turn will drive the demand for quality office as also residential spaces. It is also important to note that despite challenges over the past nine months, India’s office sector has absorbed 42.1 million sq ft, registering a growth of 66 percent Year on Year (Y-o-Y) according to the data obtained from CBRE.