In terms of cost dynamics at individual companies, a variety of factors including scale of business, service/product mix, legacy of assets/real estate could be at play. Indian IT industry spends just 4.3% of operating income annually towards real estate operating expenditure
Real estate operating expense (real estate opex) is the recurring cost associated with the office premises. The estimate given is based on our understanding of costs on property rent, facilities management, electricity, security, etc. In terms of cost dynamics at individual companies, a variety of factors including scale of business, service/product mix, legacy of assets/real estate could be at play. Indian IT industry spends just 4.3% of operating income annually towards real estate operating expenditure. A host of costs related to office premises are eliminated when work-from-home model is voluntarily taken up. However, additional cost towards employee’s home infrastructure including laptop, internet connectivity and electricity may have to be borne by the employer
Further, considering the activities move out of the enterprise’ physical boundaries, cost towards data security and productivity monitoring tools will also have to be incurred by the employer. Depending on the ratio of employees that are moved to a work-from-home arrangement, this cost incidence will occur and ultimately determine the net cost savings as outlined in Chart 2. As per our analysis, the net cost savings with a 50% work-from-home arrangement stands at 0.7%. Cost saving on account of lower CRE footprint is largely lost on additional cost incurred towards ensuring an effective work-from-home arrangement. Further, in case of large IT companies with owned premises and campus developments, the cost saving will be much less compared to companies operating from leased premises
Other considerations and the way forwardThe CRE cost saving on account of work-from-home (WFH) may not be sufficient for its widespread adoption and other critical factors will be closely examined by occupiers before taking the plunge. WFH arrangement will allow business continuity in case of adverse geographical conditions relating to people movement. Better access to talent in smaller towns, women who have moved out of workforce due to family considerations and differently abled employees would also be a consideration
At the same time, serious business challenges arising out of data leak vulnerability when an employee works outside a secure workplace setting will be a key consideration. Export is the mainstay of the IT sector with 75% revenue coming from exports. Hence, losing on tax benefits associated with working from office in SEZ will be a big consideration for occupiers
Championing organisation culture and employee engagement are far more effective in a workplace setting and organisations risk losing it in a WFH arrangement
Hence, in the Indian context, we expect that long-term work-from-home adoption will only be in a limited measure and workplaces will continue to be the primary space for work delivery
https://content.knightfrank.com/research/2028/documents/en/india-real-estate-residential-office-h1-2020-indian-real-estate-residential-office-7302.pdf
