Excess IT office spaces to hit tech metros

HYDERABAD, INDIA: The real estate boomed in India together with the growth of the Indian IT sector. Today, while the domestic tech industry is having its share of troubles, real estate too also stumbling.

Analysts and builders both agree that in the recent past there has been an oversupply of IT office spaces in the country.

The most effected cities are likely to be Hyderabad, Pune and Bangalore, where the real estate is heavily dependent on the huge IT corporate presence.

“The situation is definitely alarming and there will be an oversupply. It is the result of lack of supply demand check by many builders,” said Y Kiran, chief executive officer, SuchirIndia, a Hyderabad-based real estate company.

Analysts put an oversupply percentage of nearly 30- 40 per cent.

Kiran estimates a total of 15 to 18 million square feet of land under development in Hyderabad area, of which nearly 50 per cent is dedicated to builders for the IT sector.

“Nasscom is also currently projecting an over 20 per cent growth for the IT industry. None of the IT companies are going backwards,” said Sanjay Chawla, Business Head - Commercial & SEZ, Maytas.

But most in the business agree that the deals are not happening in the scale as before. While an average of 2 million square feet were booked by top IT companies annually, the demand has now reduced to about half a million, say trade analysts.

The rental rate for offices spaces in Hyderabad ranges from Rs 65-70 per square feet, from Rs 45 square feet only couple of years ago, said Kiran.

“The falling dollar rate has had an impact now with the rupee value rising, many Multi National corporates do not see the earlier cost advantage of having office in India,” he adds.

Cost cutting by companies is also reflected in the hiring and office spaces. IT companies that became synonymous with luxury perks are looking at new ways to save such giving employees choice to work from home.

Silver lining: maturing industry

But the scene is likely to improve in the coming quarters believe analysts, as builders could also play with the already available spaces depending on demand.

“As any other industry the oversupply situation is cyclic we do not see much trough. In fact there will better value proposition for the customer with differentiation,” said Chawla.

The company has diversified its risks on being completely dependent on a particular industry by investing in projects such as Maytas Hill County.

The project looks at a mini city where residences, office spaces and hospitals exist together.

This differentiation in product will help the company to stand out vis-à-vis a standalone IT office space, felt Chawla.

Agreeing to the point that this current situation will bring the better of the industry, Kiran added that the pricing will stabilize.

While analysts do not predict a price correction, they agree that earlier sky rocketing prices will not happen anymore.

“The prices will be more logical for the IT office spaces. Unrealistic prices that property got sold off will not exist anymore. However builders who trade at reasonable price have ample scope as customers have also become more demanding,” added Kiran.