DLF Ltd has said that Nasdaq-listed IT software firm Cognizant has given up 30-35 percent of space in its office portfolio in Chennai over the years and that this may have a marginal impact of five-six months before the company leases the commercial space again, top officials of the real estate major have said.
The matter came up for discussion during the company’s recent post-earnings call (2022-2023 results) with analysts.
“After COVID-19 there are two-three things that have got established. One is that India's digital backbone is very strong. Two, India has a compelling case for cost competitiveness in terms of English-speaking young techies on one side and global quality real estate at a fraction of a cost on the other. So the long-term trend does not change at all,” said Sriram Khattar, managing director, Rental Business, DLF Ltd.
To the specific query on Cognizant giving up space, he said that there may be a marginal impact of five-six months until the company decides to lease again.
“Now Cognizant has had a bad run and in our portfolio they have given up over the years about 30 percent, 35 percent space primarily in Chennai, compared to what I understand is about 60 percent space in some of the other buildings that they occupy. Does it impact us? Till now? No. Will it impact us in future? Yes, there will be a marginal impact of five-six months before we lease the place again,” he said.
Nasdaq-listed IT software firm Cognizant had said on May 4 that it will give up 80,000 seats, or 11 million square feet, in office space, primarily in large Indian cities, as it looks to rationalise workspace in a post-pandemic hybrid work environment and reduce its annual real estate costs by $100 million by 2025.
On May 12, DLF Ltd had reported a 40 per cent increase in its consolidated net profit at Rs 569.60 crore for the quarter ended March 2023 and clocked record sales bookings of Rs 15,058 crore for the entire last fiscal year. Its net profit stood at Rs 405.54 crore in the fourth quarter of the 2021-22 fiscal year. Total income fell to Rs 1,575.70 crore in the March quarter of this fiscal year from Rs 1,652.13 crore in the corresponding period of the previous year, according to a regulatory filing.
DLF officials also said that there has been a trend of office spaces being taken up by global capability centres when compared to third party IT and IT- enabled service providers.
“We also see that the demand that is coming up and the potential employees that are there are quite strong from the global capability centres rather than from the third-party IT service providers, who definitely take up space … but the volumes they take up are far lower. And what moves the needle is the space taken up by the global capability centres and not by the third-party providers,” said Khattar.
“I think a medium term trend you will see is a declining overtime share of the third party IT, ITeS provider with respect to the captive GCCs that I think is just a trend that's just here and you can't deny that,” said Ashok Kumar Tyagi, whole time director and CEO, DLF Limited.
GCCs, also known as global in-house centres or captives, are offshore units of large multinationals performing technology operations.
DLF Ltd has had three new buildings in the last three, four years. One is Cyber Park. One is Downtown 2 and Downtown 3 in Gurgaon, which is 1.5 million square feet. And one is about 3.3 million square feet in Downtown Chennai.
“The total of these buildings put together is about 8 million square feet – 9 million square feet. And I dare say that we don't even have a single third-party IT service provider — this has been predominantly taken up by the global capability centres. So in these … the total number of tenants are about 30 to 35. And that's a very positive trend that we see in our portfolio,” added Khattar.
On the Special Economic Zones, the company said there is a “little concern in the market because of the sunset clause”. For its SEZs, the company has maintained a vacancy of about 15 odd percent and for the non-SEZ portfolio, the vacancy has dropped down to only 6 percent.
The company’s breakup in terms of rentals is about 30 odd percent SEZ and about 67 percent to 70 percent non-SEZ. And this is the office part. The retail itself is about 22 percent, it said.