Indian IT cos sublease office space to tide over crisis

Source: TheEconomicTimes
As information technology companies learn to cut their coat according to their cloth in an economic downturn, many of them are looking to don the role of temporary landlords by subleasing the office space which has become surplus because of stalled expansion plans.

For the past five years, when most tech companies were growing at a frenetic pace, they would hire staff and acquire office space in anticipation of large contracts. The projects kept coming and the arrangement was working well as long as the good times lasted.

But now, with growth slowing, the office space that has already been acquired lies unused because hiring is down and new deals are few and far between. And many tech companies are looking to make the best of a bad bargain by letting out the excess space until the good times return.

“Most rental contracts today have a sub-lease clause. Companies may be thinking of making use of this clause if they are sitting on large blocks of empty spaces,” said Karun Verma, managing director (Bangalore) of real estate services provider, Jones Lang LaSalle Meghraj.

In November, business process outsourcer OPI sublet office space to Nokia in Bangalore. Other companies in India’s tech capital which may be looking at similar short-term deals are said to include Apple, Yahoo, Ernst & Young and Tishman Speyers.

Real estate consultants say the IT clusters in Bangalore, Pune, Hyderabad and Chennai are setting the subleasing trend, with negotiations underway between tenants, developers and potential occupants looking to share the office space. Firms which have over 10,000 sq ft of idle space are believed to be the ones most keen on the sub-lease option.

The CFO of one of India’s top IT companies said subleasing could even result in rent arbitrage in a number of cases. For companies looking to occupy sublet space, they have greater bargaining power.

Such deals can be sealed through tripartite contracts involving the developer and the tenants or bipartite, involving the tenants, with a ‘no-objection certificate’ from the developer. A real estate industry expert says there can be more such deals but for the restrictive rules by state governments.