Will Tier-III cities appear on India’s IT map, JLL report

The following is the report by Santhosh Kumar, CEO – Operations & International Director, JLL India.

The information technology (IT) sector, which has dominated office space occupancy in India for almost a decade, is now finding it difficult to expand bases in metro cities or even consolidate offices in prime locations owing to the decline in vacancy levels and quality supply. Moreover, rents have also gone up due to diminishing vacancy levels.

This may make established IT companies – planning to expand or consolidate operations in the same city – uncomfortable. On top of that, the global scenario is exerting greater pressure on these firms to maintain a tighter control on occupancy costs and cost-competitiveness. This may prompt these firms to scout for alternate destinations that also have an abundance of skilled manpower.

Would this result in the emergence of new cities as the latest office hubs? Too early to say as it would really depend on how many policies – that are very IT-friendly – these urban centres manage to implement, apart from attracting quality talent. It is no longer about a city’s lower rents alone. Infrastructure is another important factor for these firms.

Though infrastructure improvement (another major factor) is underway in many tier-III cities – and it is helping them get good connectivity to major metros – there is still much ground left for these cities to cover before they rank high on their attractive quotient for the IT companies and tech start-ups.

Cities like Chandigarh, Visakhapatnam, Vijayawada, Mysore, Kochi, Coimbatore, Tiruchi, Bhubaneswar, Ahmedabad, Gandhinagar and Jaipur offer lower rents today compared to Mumbai, Delhi-NCR, Bangaluru and even Pune, Hyderabad.

Emulating the ‘Bangaluru model’

Bangaluru is the latest entrant in the tier-I club comprising Delhi-NCR and Mumbai. The city enjoys this status as a result of years of introducing and implementing pro-IT policies. When it first came on the IT players’ radar, it had some inherent qualities like low property prices/ rentals, a good number of technical education centres, vast availability of space to accommodate campus-style offices, and pleasant weather – all of which led to a big IT footprint developing here.

A proof of its fame came in 2015 when Bangaluru made a debut in JLL’s ‘top-20 technology-rich cities globally’ and the ‘Asia-Pacific city investment intensity index’ (the index measures the volume of direct real estate investment in a city relative to its current economic size over a three-year period). The city’s growth has attracted many ex-pats as well as start-ups.

Given that the economic outlook for India looks good and poised for strong growth in the years to come, it boils down to which city can manage to become more attractive for IT/ ITeS and start-ups than Bangaluru, Pune and Hyderabad.