Sunday, July 21, 2024

India must capitalise on Big Tech’s leasing boom

Even as office complexes in traditional business hubs such as Manhattan and Outer London are being converted into flats at a brisk pace, demand for office space continues to grow in India. Reports about big leasing deals by tech giants such as Amazon and Google in various Indian cities suggest that a significant portion of India’s boom in office rentals stems from the fact that global giants are creating more jobs here than in rich, labour-scarce countries.

Extended periods of remote work during the pandemic and the work-from-home culture it engendered had already laid the ground for extensive decentralisation and distribution of work, potentially across the world. There is also an incentive to make good on this possibility in the form of rising wages in a tight labour market.

Unemployment in the US has been close to 3.5% since February 2022 – the lowest level since the 1960s. The latest unemployment rates are 3.6% in the US, 3% in Germany, 3.7% in Britain, 2.4% in Japan, 2% in Singapore, 3.1% in South Korea, and 3.5% in Australia and the Netherlands.

For the euro area as a whole, unemployment stood at 6.6% in January thanks to double-digit unemployment rates in countries such as Spain and Greece. Across Europe, there is strong industrial action to demand wage increases in an effort to neutralise high inflation. Tight labour markets make it difficult to resist such demands. The result is a cycle of rising wages, inflation and interest rates.

Meanwhile, India offers a plentiful supply of reasonably good talent at a relatively low cost. In just the past month, Amazon has leased 800,000 sq ft of office space in Gurgaon and Hyderabad, and 600,000 sq ft in Bangalore. Google has taken on 3 million sq ft of office space in Bangalore. Co-working companies are also leasing hundreds of thousands of sq ft, at the rate of about 100 sq ft per employee. Owing to political sensitivities, they are unlikely to officially declare the number of new jobs they are creating in India even as they are sacking employees in their home countries.

Property consultancy firm JLL sees gross leased space continuing to rise, even as net leasing is not too robust in the largest cities, possibly due to work-from-home policies releasing some occupied space. The first quarter of 2023 saw year-on-year growth of 23.2% growth in the pan-India demand for office space. It was most robust in Bangalore and Delhi-NCR, where demand grew at 94.8% and 39.6% year-on-year, respectively. However, all-India demand growth between the last quarter of 2022 and the first quarter of 2023 has been negative. But JLL sees no reason to worry.

“This quarter saw the highest leasing activity compared to the same periods in 2021 and 2022. The growth story driven by global capability centers in various sectors, such as BFSI, new tech, engineering R&D, along with segments like flex, healthcare-life sciences, and manufacturing/industrial occupiers, is expected to propel office markets’ activity,” according to a JLL official.

Sustained growth in office-space demand will lead to sustained construction. That, in turn, will spur the production of cement, steel and other building materials. This will create upstream demand in power, coal, earthmoving machinery, and logistics. Such a growth spurt will create demand for human talent as well.

The growth in demand for office space will also increase the demand for highly skilled workers to occupy them, and for lower-skilled workers as well.

This demand for construction and assorted skills is entirely separate from the 13.7 trillion capital expenditure the government has proposed in the budget. This budget outlay, once turned into expenditure on infrastructure, will further add to the economy’s growth momentum.

Global capacity centres are being planned in India’s big cities, the traditional centres of such work. There is the potential to add to such demand for workspaces in places that are traditionally for relaxation and fun, given the worldwide remote-work trend. Traditional tourist centres in Europe now see work-from-home types stay for months, working hard during the day and enjoying touristy comforts in the evenings. India probably has hundreds of such places in the making, especially with the ongoing rollout of 5G networks across the country.

With some imagination and timely marketing to both companies trying to hire talent and the growing army of footloose gig workers doing high-end jobs, India can accelerate this trend of hosting knowledge work for the world’s leading businesses and generating high-paying work for its young.

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