Cognizant giving up space may exacerbate slowdown in real estate absorption

May 6, 2023

Nasdaq-listed IT major Cognizant is giving 11 million sq ft of space, close to 80,000 seats, mostly across large Indian cities or Grade A office spaces, as it looks to rationalise workspaces and adapt to a hybrid model in a post-pandemic environment. 

The decision may not have sent Indian real estate into a tizzy, but experts see this as a decision “that is no different” from what companies are doing in the face of a looming slowdown. 

One of the largest REITs in Indian real estate has said there is a slowdown or delayed decision-making regarding large deals – typically 2 mln sq ft and above, and a sweet spot for IT biggies – while smaller deals of 50,000 – 100,000 sq for size are quite high. 

According to Anuj Puri, Chairman of Anarock Group, while the layoffs and the rising significance of AI-led solutions certainly have caused a flutter among IT employees, it may not directly impact the commercial office market in India.

“The commercial office market in India was depicting some initial signs of a slowdown since H2 2022, and amidst the current looming fear of a global recession, the office space demand is likely to shrink by 10 – 12 per cent in 2023. As a corollary, supply may exceed demand leading to a rise in vacancy levelsaround 18 – 20 per cent, leading rentals to remain flattish in 2023,” he said. 

Vacancy levels across Grade A office spaces are around 16 per cent at present, say industry sources. 

Savills India, in its report, said that office space absorption across India’s six major cities stood at 14 mn sqft, registering a 16-per cent quarter-on-quarter growth in the first quarter of 2023. But, the year-on-year gross absorption comparison indicates an 11-per cent decline owing to global economic pressures. The Q1 vacancy level, as per the report, was 18.4 per cent. 

 Interestingly, a real estate developer points out that Cognizant giving up space will be spread across large cities – like Bengaluru, Kolkata, Chennai, and Pune, among others. So typical citywise segment break up means the company could give up 2-3 mln sq ft space across each city. Details are still not available. 

This would mean developers are slowing down on existing development or looking to fill in space with smaller deals. In all likelihood, co-working spaces could come in and fill up the gap. Co-working companies taking up areas to the tune of 50,000 sq ft and above, especially Grade A, is a trend that the office market has been witnessing over the last few quarters. 

“Coworking space leasing going up in Grade A offices is a success story that is often overlooked since most people talk about large deals or office space leasing,” the developer said. 

As per a report by real estate consultancy firm Savills India, for Q1 2023 (Jan – Mar); the flex spaces gross absorption share stood highest at 27 per cent ; followed by IT-BPM and BFSI sectors which accounted for 23 per cent and 16 per cent demand share respectively. The Bengaluru, Delhi-NCR and Chennai together accounted for two-thirds of quarterly demand.

“The co-working segment may benefit from office space release by IT majors and other companies, looking to optimize their real estate costs,” Anarock’s Puri adds. 

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