Over 46% of office leasing is by offshoring industry: Report

April 17, 2024: According to a report by Knight Frank, Asia Pacific Horizon: Harnessing the Potential of Offshoring[1], India has been named among the leading offshoring locations in the world. The Indian offshoring market has evolved itself as a significant occupier in India’s office space with leasing over 46% of office space in 2023, with GCCs being the biggest offshore occupier. Moreover, the offshoring market saw an overall leasing volume of 27.3 million square foot (msf) in 2023 (cumulative transaction volumes from GCC: 20.8 msf and third-party IT services: 6.5 msf), a significant increase of 26% from the previous year, the report said.

Further, in recent years, India’s office real estate market has seen a positive trend from GCCs, seeking growth opportunities in the global offshoring industry. The GCC landscape in India has grown significantly by fostering more than 1,580 centres across the nation in 2023. The GCCs proposition in the Indian leasing transactions has increased from 25% in 2022 to 35% in 2023, the report mentioned.

Though Information Technology remains the biggest GCC occupier in the country, the growth was significantly propelled by GCCs from the industrial sector, particularly in the semiconductor, automobile and pharmaceutical industries. These GCCs secured large spaces to capitalise on unique growth opportunities and align with the momentum of these industries globally.

Source: Knight Frank Research

Viral Desai, senior executive director, Occupier Strategy & Solutions, Industrial & Logistics, Capital Markets and Retail Agency Knight Frank India, said, “India has been a traditional leader in the outsourcing market and the meaningful policies of the government has augmented its position with a unique proposition of a high-skill, low-cost market. Over the past decade, India has transformed itself from a cost-effective centre into a value-adding captive centre. By aligning itself with evolving needs of global businesses, India is now an established centre of excellence. The growing share of Global Capability Centres (GCC) in total leases will remain supportive of office market demand in 2024. Further it is projected that GCCs will potentially drive the office market in the next decade. By 2030, there will be an estimated 2,400 GCCs across India as it emerges as a global technology and services hub[2]. Assuming a similar pace of growth, the number of GCCs in India may scale up to 2880 by 2034.”

Offshoring emerges as crucial catalyst for surging office demand

Further, the Knight Frank report mentioned that global companies increasingly seek cost-effective solutions to minimise expenses and a growing number are now looking towards offshoring functions as a strategic avenue. Offshoring has emerged as a critical driver propelling office demand in four APAC Hubs – India, Philippines, Malaysia and Vietnam.

Indian IT Service Exports is expected to expand from $185.5 billion in 2023 to $230.5 billion in 2025[3]. The current pace of additional commercial assets supply will expand Indian office market stock to an estimated one billion square feet by 2025.

Knight Frank’s latest report highlights the essential factors that define the region’s appeal as the best location for offshore services and sheds light on the significant changes in the industry.

Markets offering the best offshoring locations around the world

Tim Armstrong, global head of occupier strategy and solutions, Knight Frank, says “Companies today face a multitude of challenges, including cost management, sustainability and talent retention and attraction. At a time when companies worldwide are looking to increase performance, efficiency and innovation whilst also prioritising cost control, Asia-Pacific offers considerably lower operating costs, at nearly 70% less than the US, based on Knight Frank research. For every square foot of office space, occupiers can expect to save on average USD 70.86 in the four cities compared with mature markets. This translates to a staggering 54% cutback in occupancy costs annually.”

[1] The offshoring market involves companies outsourcing business processes or services to external providers located abroad, aiming to leverage cost savings, specialized skills, and operational efficiencies. The offshoring market is also known as Business Process Outsourcing (BPO), encompasses various models such as Global Capability Centers (GCCs) and Business Services (GBS). Where GCCs are internal units set up by companies in offshore locations, while GBS involves centralized service delivery units providing a range of services globally.

[2] Future of GCCs in India – a vision 2030 report, Ernst & Young, 2023

[3] According to RBI’s data on Export Services for IT & BPO Services, the total exports for 2022-2023 amounted to $185.5 billion. Using historical data from RBI spanning from 2012-2013, where total exports were $62.6 billion, a Compound Annual Growth Rate (CAGR) of 11.5% has been computed. Based on this CAGR growth rate, the projected exports amount to $230.5 billion for 2024-2025.

[4] unberry.com/blog/bpo-industrys-talent-outlook-and-challenges-in-2023

[5] NASSCOM, Invest India

[6] Source: RBI