MNCs buying office space in India instead of leasing

Multi-national companies (MNCs) operating in India are now opting for outright purchase of office space instead of taking it on lease, rReal estate consultancy Cushman & Wakefield said in a report.

MNCs in India are increasingly investing in office spaces with Rs.2,470 crore worth of transactions taking place during the last two years, it said.

"There is a seismic shift in the traditional approach of leasing space that such companies have had for years while considering overseas investment," Cushman & Wakefield said in the report.

It said MNCs in the banking, financial services and insurance (BFSI), information technology enabled services (ITES), fast moving consumer goods (FMCG) and pharmaceutical sectors are among the lead commercial office buyers.

According to the report, in 2010 foreign MNCs made negligible contributions to the sales of commercial office space.

But in 2012, 2013 and during the 1st quarter of 2014 foreign MNCs contributed 43 percent to the total sales value of commercial offices.

"Companies that have established operations in India and are confident of their projections and potentials in the country are now tailoring their real estate requirement so that they can be more cost-effective," Sanjay Dutt, executive managing director-South Asia, was quoted as saying in a statement by the consultancy.

According to him, companies in specific sectors such as pharmaceuticals, IT and ITES are looking to consolidate their research and development divisions with their front-end divisions in a single setup and are looking for assets to purchase as it proves to be a cost effective strategy for companies.

"Another factor compelling especially the US-based companies to switch from 'Leasing strategy' to 'Buying strategy' is that corporate profits earned outside the US are not subject to federal taxes unless they are brought back to US shores," Dutt said.

This enables the US-based MNCs to redeploy their profits and also reduce their outgo.

According to Cushman & Wakefield, rents have been going up from 2011 to 2013 in most of the markets where MNCs have leased their office spaces.

Capital values have also increased moderately during the period. Hence, companies stand to gain financially if they decide to deploy capital to acquire the spaces they occupy.