MNCs' office space leasing for R&D base in India rose 5-fold in 2014-19 period: Report

Gross office space leasing by MNCs to set up R&D centres across major Indian cities stood at 14.13 million sq ft in 2019, a nearly five-fold jump from 2014, as the country remains an attractive destination for global outsourcing

NEW DELHI : Gross office space leasing by multi-national companies to set up R&D centres across major Indian cities stood at 14.13 million sq ft in 2019, a nearly five-fold jump from 2014, as the country remains an attractive destination for global outsourcing, according to Cushman & Wakefield.


The property consultant has recently released its report titled 'Global Capability Centers -- Making India the Cradle of Global R&D' that analyses the Indian 'Global Capability Centers (GCC)' industry, its evolution over the years and key growth drivers.


During 2014, only 3.15 million sq ft of gross office space was leased by captive or GCCs, contributing 8% of the overall gross leasing. The number, however, jumped to 14.13 million sq ft during 2019.


The share of captive centers in the overall office demand has risen to 20.9 per cent during 2019 from a mere 8 per cent in 2014, the consultant said in a statement.


"The captives, Global In-house centers (GICs) or Global Capability Centers (GCCs), however we classify them, have been in India for more than two decades. They have steadily grown over the years but the pace of growth has been significant in the last 5-6 years. They have rapidly expanded across cities to enable the parent global organisation’s digital transformation journey," said Anshul Jain, MD- India & SE Asia, Cushman & Wakefield.


As per the report, the total area occupied by the GCCs currently stands at 140 million sq ft currently, of which engineering and manufacturing accounts for 36%, followed by IT-BPM at 25% and BFSI by 20%.


Bengaluru remains the 'Silicon Valley' of India and accounts for a major share of Indian tech business and GCCs.


However, of late, other cities like Hyderabad, Pune, and Chennai have gained ground, especially as tech, financial services and manufacturing sectors have started expanding to other talent-rich geographies, it added.


The report highlighted that the total number of GCCs in India is more than 1,750, while the numbers of companies that have set up GCCs in the country are over 1,400, of which 35 per cent are IT-BPM and 34 per cent firms are in the engineering and manufacturing sector.


Interestingly, one fourth of global Fortune 500 companies have set up R&D bases in India.

Out of the total number of GCCs in India, around 1,680 are in top six cities -- Delhi-NCR, Mumbai, Pune, Bengaluru, Hyderabad and Chennai -- employing 1.17 million workforces.


City-wise, Bengaluru houses 36 per cent of the total GCCs, followed by Delhi-NCR at 16 per cent and Hyderabad 14 per cent and Pune 12 per cent. Mumbai and Chennai each account for 11 per cent of the total GCCs.


Around 17 secondary cities have 70 GCCs with over 30,000 employees. Secondary or tier-II cities such as Ahmedabad, Vadodara, Coimbatore, and Chandigarh are also attracting start-ups as well as GCCs because of talent pool availability and lower costs.


"The growth of GCCs is largely based on the three pillars of cost efficiency, innovation and delivery excellence. However, with global multinationals based in the US, Europe and Japan increasingly looking at India as an innovation and knowledge centre, GCCs have been focusing on the next phase of growth," Jain said.


He expects India to become a hub of global ER&D (Engineering Research & Development) centres and contribute significantly to the digital strategies of global multinational corporations.


According to the report, real estate costs are lowest in India compared to other APAC cities and this has been a major reason for growth of GCCs in the country.


Cost is the key reason along with the talent pool, as annually India offers around 1 million of engineering graduates.


Global multinational corporations prefer large Grade A office spaces at competitive rentals for their ER&D operations and India with lowest rents in the region offers the biggest cost savings among the peers.


"With rupee depreciation against the dollar of around 10-12% already in 2020, and considering a further 2-3% y-o-y depreciation in the rupee further, we could be looking at lower costs in dollar terms for occupiers, even if real estate costs were to rebound slightly in 2022-23, both of which will offset each other," the report said.


Digital analytics, artificial intelligence and machine learning are some of the futuristic technologies in which expertise is being built to support the R&D strategies of parent organizations.


"In a world being continuously reshaped by COVID and its aftermath, innovation and R&D will be critical for global firms for evolving their businesses even as they will look for newer avenues to sustain and grow. GCCs in India are already at the forefront of driving such initiatives and delivering cutting-edge data science and insights for business and ensuring delivery excellence," Jain said.


Cushman & Wakefield, which is listed on the NYSE, is a leading global real estate services firm with about 53,000 employees at 400 offices and 60 countries. In 2019, the firm had revenue of $8.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services.


Source: https://www.livemint.com

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