ACCENTURE, IBM AND OTHER IT COMPANIES TO ANNOUNCE MORE COST-CUTTING MEASURES! - DETAILS

IT companies across the globe are adapting to new changes in their respective workplaces. Many companies have been introducing new cost cutting measures to make up the losses incurred due to COVID19. Apart from Layoffs and pay cuts, many companies are also reducing their real estate investment to reduce costs. 

According to a report by real estate data provider CRE Matrix released in May, around 391 million sq. ft of commercial space is at stake within the next 12 months. The report also stated that out of these, around 186 million sq. ft have completed the lock-in period and will see leases expire within 12 months.

Ever since the pandemic broke out, more than 90% of employees in all IT companies are working from home and many firms are trying to announce permanent ‘Work from Home’ for employees. 

This trend has affected property developers who are worried that this will affect Real Estate Investment Trust (REIT), a company that manages a pool of rent- yielding assets enables developers to monetize them.

On Friday, a report in the Economic Times suggested that global IT firm IBM may reassess and exit half of its long-term tenancies in India, although the company has deemed the reports to be “inaccurate".

IBM is one of the biggest tenants of Embassy, Office parks REIT and contributes to 12W% of their annual rental income which covers 3.6 million sq. Ft office space. 

IT Major Accenture is also one of Mindspace Business Parks REIT’s biggest tenant. The company accounts for 8.7% of Mindspace Business Parks’ annual rental income, occupying 1.9 million sq. ft of office space, according to the draft IPO prospectus filed by the company in December.

“The IPO market is weak due to COVID and with concerns that IT firms will relook their real estate strategy, one feels that public offerings of REITs will be a challenge this year. Investors will want to wait two to three quarters to see how this plays out," an investment banker told Livemint.

According to the CRE Matrix report that almost “219 million sq. ft of office space across India has a lock-in expiring in the next 12 months or beyond, and amounts to ₹20,704 crore of annualized rent receivable to landlords. Further, around 249 million sq. ft of office spaces have either gone past lock-in expiry dates or do not have such clauses.”

While this strategy is enabling companies to reduce costs efficiently, it is having a profound impact on businesses affiliated to real- estate.