How the Indian IT sector faces several major challenges in 2017 – but these same disruptions are set to create a number of longer term opportunities.
India’s office real estate market has undergone a complete metamorphosis over the past couple of years, both in terms of demand drivers and space format requirements. The Information Technology (IT) and allied services sector has been the principal driver of office space demand in India; with its share in office leasing varying from as high as upwards of 50% over the past couple of years, to as low as 35-40% in recent times. The sector is currently going through a series of disruptions; changes in the H-1B visa regime proposed by the new US government, increased protectionism impacting the growth of outsourcing to India, the increasing automation of processes – all of which are likely to lead to a subsequent slowdown in projected demand. Being a flagship industry, disruptions in the same are expected to trickle down to the Indian real estate (RE) sector as well.
THE H-1B VISA ISSUE
The new US legislation proposes the doubling of minimum wages of H-1B employees from the current USD 60,000 to more than USD 130,000 (for certain employee categories only). This would be applicable for only ‘visa-dependent employers’ or corporates having more than a 15% share of H-1B visa employees. This is likely to impact global corporates, who are anticipated to hire Americans over Indians across US-based offices along with downsizing their expansion plans in India.
While the regulation is likely to make an impact on the hiring plans of IT companies, however, most Indian-origin employees who have been hired under the H-1B visa regime are paid salaries which are comparable to their India-based counterparts (in addition to an allowance to work in the US) and fall outside the purview of the proposed changes in the visa regime. For those who will get impacted by the proposed changes, we can expect a certain degree of reverse migration to India. Given their skill set, this would contribute significantly to the entrepreneurial evolution that the country is experiencing, particularly from the perspective of its start-up culture. India is already the third largest destination for start-ups in the world; hence, a further strengthening of this start-up base would only boost demand for office space from this segment in the medium to long term.