IT Cities Continue to Outdo non-IT cities in Office Absorption

Ramesh Nair – CEO & Country Head, JLL India

Office space take-up in Hyderabad in 2Q17 was almost double the number seen in 2Q16. At ~1.9 mn sft, Hyderabad saw 98% of 2Q16’s absorption this quarter. At ~1.7 mn sft, Bengaluru also inched marginally ahead of the 2Q16 figure. Pune, which has been facing a supply crunch of quality office space, saw the net absorption in 2Q17 decline by 37% (y-o-y).

Delhi-NCR, which has more than 60% of its total office space occupied by IT players, saw a decline of 22% (y-o-y). Among other cities, all but Kolkata saw a decline in net absorption figures. Chennai saw the highest decline of 47% followed by Mumbai at 29%. Interestingly, Kolkata saw 189% increase in absorption but on a lower base than any other city.

The pan-India absorption is also down by 1% (y-o-y). Overall absorption is lower because of lower supply hitting the market. A lesser number of big-ticket office leasing transactions, preferred mainly by IT players, were observed in this quarter. In comparison to 1H16, supply in 1H17 was also lower by 50%.

Net absorption (Y-o-Y):

The Trump Effect

‘The Protect and Grow American Jobs Act’ is an executive order, which proposes important changes in the eligibility requirements for H1-B visa applications like an increase in minimum wage to USD 130,000, which is more than double of the present limit of USD 60,000. The change ensures that the H1B programme is used only to complement American workers.

Considering the proposed changes, IT companies are changing their hiring strategies, so as to reduce their dependence on employees under the H1-B visa programme by hiring more local talent in the USA. The 65,000 people that the USA invites under the H1B programme form only 0.0004% of the 160-million strong American workforce. Also, the unemployment rate among skilled workers is around 2%, which points towards a shortage of skilled talent in the USA.

Therefore, the Trump effect on IT jobs in India will be marginal, at best. The bigger impact will be felt thanks to automation and artificial intelligence. However, newer technologies like cloud computing and big data will also create newer jobs. The ability of Indian IT firms to reskill their employees for such newer opportunities will decide their growth trajectory going forward.