US firms seek more space for BPO ventures

Demand seen for 300 mn sq feet by 2014

US companies are looking to lease over 300 million square feet of space over the next 10 years in India, thanks to business process outsourcing (BPO).

A demand of such magnitude had never been seen anywhere but in the US and Europe, international corporate real estate consultant CRESA Partners Chairman William W Goade told Business Standard here today.

However, rents in major Indian cities were not expected to escalate more than 5-10 per cent since developers were matching the demand for real estate comfortably, added Gennex-CRESA Partners India Principal and Managing Director Ashok Kumar.

"There cannot be much of an increase in rentals as corporates have the option to move to other cities. Last year, about five million square feet of space was taken up by call centres without much impact on rentals," he added.

Goade is among the over 240 property consultants and corporate real estate chiefs from across the globe who are in Mumbai attending a global property summit.

Heads of companies, handling the leasing of property worldwide, are attending the three-day CoreNet Global India Summit.

The list includes officials from Disneyland, Cisco Systems, Nokia, Citigroup, Prudential Plc, Sun Microsystems and JP Morgan Chase & Co.

US companies are more committed to investments in the Indian real estate market than in China, an official with Colliers Jardine, the American property consultant, said. He said this was because of the abundance of skilled English-speaking workers here.

On the other hand, US companies rent land for manufacturing enterprises in China; in India, they will be renting property for BPO ventures. Some three million jobs are expected to be outsourced to India in the next decade.

"Real estate demand follows job opportunities and with more and more jobs being outsourced to India, the demand for real estate in the country is expected to touch 300 million square feet in the next 10 years," Goade said.

His US clients are looking at leasing 10,000-15,000 square feet of space and are willing to invest a large amount to improve the infrastructure to meet their specific needs.

"The existing Indian infrastructure does not meet the standards of US companies," he added.

JP Morgan Chase was also planning to increase the number of jobs outsourced to India, said the company's head of real estate business services, Richard Watton. The US entity already has a call centre in Mumbai.

India was never on the business radar screen of most US companies two years ago, but now there has been a great awakening and this has translated into greater demand for real estate, he said.

Unlike the internet bubble that resulted in the property prices crashing in the US by 40 per cent in 2000, US corporates do not expect the BPO boom to translate into phony real estate demand.

"The internet story was one where people took real estate they did not need because they never hired people and never had the revenues. Jobs being outsourced to countries like India are existing jobs that need to get done," said Goade.