Slowdown: What IT cos are doing

BANGALORE: A rising number of information technology firms are consolidating and re-aligning leased office spaces across the metros, hoping to save their rents and operating costs that will help them sail through the global economic storm.

Among the big-ticket lease agreements locked recently is that of Mahindra Satyam. The IT services provider, which operates from multiple locations in Bangalore, has taken up 5,00,000 sq ft of space in Manyata Tech Park in the city.

Following suit are IT majors, such as EMC, Cognizant, Persistent Systems and Nokia-Siemens, all of which have leased large office spaces to house multiple units under one roof.

According to real estate services firm Jones Lang LaSalle, 80-85% of the demand for office spaces in India comes from the IT/ITeS sector. The sector occupied 28 million sq ft of office space last year compared with 32 million sq ft in 2010.

"IT firms grew in sporadic manner as their clients were located in multiple locations," said Ram Chandnani, deputy managing director at commercial real estate broker CB Richard Ellis. "Now companies are looking at moving into one or two locations to bring efficiency and reduce transport and other costs."

While EMC, a provider of storage hardware solutions, has picked up 3.5 million sq ft of office space on the outskirts of Bangalore, Cognizant has taken up 250,000 sq ft in DLF Akruti in Pune.

The IT and BPO services firm has also rented three strategic sites to expand operations in Hyderabad. This is in addition to around 7,00,000 sq ft the company had recently taken on lease in Hyderabad's K Raheja Mindspace SEZ.

Earlier, Persistent Systems, a software product development services provider, had taken up 4,70,000 sq ft of space on lease in Pune, while wireless equipment maker Nokia-Siemens rented 8.5 million sq ft in Bangalore's Manyata Tech Park.

Real estate and transport of staff constitute about 24% of an IT firm's total costs. Consolidating offices could translate into a 15-22% saving under this head, according to some analysts. Moreover, housing staff under one roof saves expenditure on energy and housekeeping and maintenance staff.

"Rental forms a large part of the total operational costs and we are looking at maximum utilisation of real estate," said N Venkatraman, CFO of Sonata Softwares, which recently closed its facility in Bangalore's central business district and moved to Global Village Tech Park. "Even if we can save a rupee on fixed costs, it will directly reflect on our bottom line. All our new headcount addition will be in the new campus."

Sonata, a technology solutions provider, occupies 1,15,000 sq ft in the Global Village Tech Park. The company also owns a campus in Hyderabad besides the corporate headquarter in Bangalore.

Slowdown in the US and the lingering debt crisis in Europe have put nearly 85% of Indian IT firms' revenues under a cloud. Experts say the global outlook will determine real estate spends by IT firms in the days ahead.