IBM plans to reduce office space by nearly half in India
IBM is planning to discontinue lease agreements at nearly half of its offices in major cities across the country, people familiar with the development told ET, as the US-based technology leader sees the work-from-home model becoming mainstream and a significant number of employees to continue working remotely.
IBM, which has a large presence in the domestic market, has more than 1 million square feet of leased office space across Bengaluru, Hyderabad, Noida, Gurugram and Kolkata. The company employs more than 100,000 people in the country and also has temporary workers through staffing firms.
“Maybe 25% of the people need to come to the office regularly. For others, it will be flexible, and their workspace will also be the same,” a source, who declined to be named citing company policies, said. The person did not specify a timeframe for ending the lease agreements.
IBM declined to comment. A senior executive at the company, however, said it would take a “relook” at many lease agreements that are up for renewal, although it would not impact half of such contracts. As India imposed a lockdown late in March to stem the spread of the Covid-19 pandemic, Indian IT firms shifted more than 4 million employees to work from home. Since then, the industry has been able to effectively deliver services to clients remotely and has ruled out a return to normal of all employees staffing offices.
Tata Consultancy Services, India’s largest IT services firm, has in fact set a target of three-fourths of its employees working from home by 2025, with only a quarter of them occupying office space regularly. Analysts suggested that IBM’s move was a clear case of cost reduction on multiple fronts.
“There is a lot of pressure in terms of top line and bottom line for all IT Services companies, so at some stage, the need to reduce costs is critical. All companies are focusing on automation and there are a large number of employees working from home now,” said Sanchit Vir Gogia, chief executive of Greyhound Research.
IBM’s India business has slowed in the last few years. In fiscal year 2019, IBM’s revenue declined by 2% to Rs 27,279 crore, while profits dropped by 12% to Rs 2,426 crore.
Abhishek Kiran Gupta, chief executive officer of real estate intelligence firm CRE Matrix, said, “For IBM to go back and renegotiate, two things need to happen -- their ongoing leases must pass lock-in periods and the sub-registrar offices have to start functioning across the country. To my mind, that may start happening only in late Q3 of the calendar year.”
Gupta said new commercial leasing transactions will come with a fall in rentals. "Tenants have an upper hand over individual landlords, not necessarily institutional landlords," he said. According to a report by CRE Matrix in May, India will see lease agreements worth Rs 6,860 crore for 77 million sq ft expiring in the next 12 months.
June 19, 2020