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Office space leased by MNCs to set up R&D centers jump 5-fold during 2014-19: Cushman & Wakefield

Awantika Mohanty • 21/12/2020
  • Gross leasing of office space by captive centers stood at 14.13 million sq. ft during 2019

Office space leased by MNCs to set up their R&D centers across major Indian cities has jumped five-fold during 2014-19 period as India remains an attractive destination for global outsourcing, driven by huge talent pool and cost efficiency, according to a report by Cushman & Wakefield.

The global property consultant on Monday released its report titled 'Global Capability Centers -- Making India the Cradle of Global R&D'. The report analyzes the Indian 'Global Capability Centers (GCC) industry, its evolution over the years and key growth drivers.

During 2014, only 3.15 million sq. ft of gross office space was leased by captive or global capability centers, contributing 8 per cent of the overall gross leasing. The share of captive centers in the overall office demand has risen to 20.9 per cent during 2019 from a mere 8 per cent in 2014.

Total area occupied by the GCCs stands at 140 million sq. ft currently, of which engineering and manufacturing accounts for 36 percent, followed by IT-BPM at 25 per cent and BFSI by 20 per cent.

The report also highlighted that Bengaluru remains the 'Silicon Valley' of India and accounts for a major share of Indian tech business and GCCs. However, of late, other cities like Hyderabad, Pune, and Chennai have gained ground, especially as tech, financial services and manufacturing sectors have started expanding to other talent-rich geographies.

On the launch of the report, Mr Anshul Jain, MD – India & SE Asia, Cushman & Wakefield, commented that "The captives, Global In-house centers (GICs) or Global Capability centers (GCCs), however we classify them, have been in India for more than two decades. They have steadily grown over the years but the pace of growth has been significant in the last 5-6 years. They have rapidly expanded across cities to enable the parent global organization’s digital transformation journey"

Key Highlights of the report:

  • The Cushman & Wakefield report revealed that the total number of GCCs in India is more than 1,750.
  • The numbers of companies that have set up GCCs in the country are over 1,400, of which 35 per cent are IT-BPM and 34% firms are in engineering and manufacturing sector. Interestingly, one fourth of global Fortune 500 companies have set up R&D base in India.
  • Out of the total number of GCCs in India, around 1,680 are in top 6 cities -- Delhi-NCR, Mumbai, Pune, Bengaluru, Hyderabad and Chennai -- employing 1.17 million workforces.
  • City-wise, Bengaluru houses 36 per cent of the total GCCs, followed by Delhi-NCR at 16 per cent and Hyderabad 14 per cent and Pune 12 per cent. Mumbai and Chennai each accounts for 11 per cent of the total GCCs.
  • Around 17 secondary cities have 70 GCCs with over 30,000 employees. Secondary/tier 2 Cities such as Ahmedabad, Vadodara, Coimbatore, and Chandigarh are also attracting start-ups as well as GCCs because of talent pool availability and lower costs.

Mr Anshul Jain added that “The growth of GCCs is largely based on the three pillars of cost efficiency, innovation and delivery excellence. However, with global multinationals based in the US, Europe and Japan increasingly looking at India as an innovation and knowledge center, GCCs have been focusing on the next phase of growth. We expect India to become a hub of global ER&D centers and contribute significantly to the digital strategies of global multinational corporations”.

According to the report, real estate costs are lowest in India compared to other APAC cities and this has been a major reason for growth of GCCs in the country. Cost is the key reason along with the talent pool, as annually India offers around 1 million of engineering graduates.

Global multinational corporations prefer large Grade A office spaces at competitive rentals for their ER&D operations and India with lowest rents in the region offers biggest cost savings among the peers.

With rupee depreciation against the dollar of around 10-12% already in 2020, and considering a further 2-3% y-o-y depreciation in the rupee further, we could be looking at lower costs in dollar terms for occupiers, even if RE costs were to rebound slightly in 2022-23, both of which will offset each other.

Digital analytics, artificial intelligence and machine learning are some of the futuristic technologies in which expertise is being built to support the R&D strategies of parent organizations.

Mr Jain also added, “In a world being continuously reshaped by COVID and its aftermath, innovation and R&D will be critical for global firms for evolving their businesses even as they will look for newer avenues to sustain and grow. GCCs in India are already at the forefront of driving such initiatives and delivering cutting-edge data science and insights for business and ensuring delivery excellence.”

About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 53,000 employees in 400 offices and 60 countries. In 2019, the firm had revenue of $8.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.comor follow @CushWake on Twitter.

Access Cushman & Wakefield’s report on Global Capability Centres - Making India the Cradle of Global R&D here