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Nearly 90 percent of IT employees miss office environment: Knight Frank Survey

The Knight Frank India,a leading international property consultancy,today released its latest report which cited the impact of the work from home on the corporate real estate in India from two dimensions I) Employee Insight and II)Cost structure. According to theWork From Home (WFH) and the impact on Corporate Real Estatereport byKnight Frank India, nearly90% of survey respondents miss their office environment while working from home.In the share of employees who miss their workplace, NCR (98%) leads the table followed by Mumbai (94%), Bangalore (91%), Chennai (90%), Pune (88%) and Hyderabad with 81%. The COVID-19 enforced WFH has also adversely impacted the productivity and performance of the employees. About30% of employees have expressed deterioration in their productivity and work performance while working from home.

Considering the significance of 4.1 million IT sector employees and their influence in decision making, Knight Frank India conducted an extensive survey with 1600 employees of Information Technology (IT) & Information Technology enabled Services (ITeS) companies in India to understand their proclivity towards Work From Home. The Survey cited that 60% of respondents believed time saved due to no office travel, and 58% highlighted savings due to no cost of travel, as advantages for WFH. Whereas, in terms of disadvantages, 43% felt a lack of office driven social life and 42% cited difficulty to focus in an informal setting.

The Information Technology sector has been the key driver of Indias office market. It contributed 44% of cumulative office space demand in the last 10 years (2010-2019). Hence, the report dwells into a deeper understanding of the saving yields from WFH from the prism of the cost structure of the IT firms. The study was based on financial statements of the 119 listed IT companies representing 37% of the industry operating income, and 28% of the employee base.

According to the report, in terms of real estate operating expense (real estate opex), the Indian IT industry spends around 4.3% of its operating income annually on real estate costs. Smaller IT companies spend their 4.7% on real estate, followed by large IT companies at 4.4% and mid-sized IT companies at 3.6%. Overall, office space rent paid by IT companies constitutes 0.5% to 2% and the remaining is the cost incurred towards operating these facilities.

As per the analysis, with consideration for an assumed 50% of employees working from home, net cost savings yielded for IT firms stood at around 1%.This is after adjusting for additional cost borne by IT companies for setting up the home infrastructure.Further, there is not much variation in saving across large, mid or small segment of companies. While business continuity planning (BCP) stands as a reasonable argument in favour of a Work From Home model, cost-saving as a parameter does not support this ideology. It is to note, in the case of large IT companies with owned premises and campus developments, the cost-saving will be even lesser compared to companies operating from leased premises.

Sugata Sarkar, Senior Director - Consultancy & Market Research, Knight Frank Indiasaid This unique market research of the real users of IT / ITeS office spaces clearly indicates that despite certain conveniences sited for work from home arrangement, most employees miss office environment due to the benefits of communication and collaboration. For any IT/ ITeS services company, new work arrangements should bring in significantly greater efficiencies for it to be considered successful. However, as the survey clearly shows, end-users have not seen any remarkable increase in efficiency. At best, it has remained same as before. Without significant improvement, the real value of Work from Home arrangement may not be impactful on a long- term basis.

Real estate cost dynamics of Indian IT companies

Large

Mid

Small

Total

Operating Income segment (INR crore)

Over 10,000

1,000 to 10,000

Up to

All

1,000

No. of companies

5

27

87

119

Operating income (INR crore)

3,56,512

94,308

19,035

4,69,856

No. of employee

9,15,546

1,96,417

51,642

11,63,605

Net profit (INR crore)

65,068

5,737

1,254

72,060

Office space estimate (sq ft) @ 80/employee

7,32,43,680

1,57,13,360

41,31,360

9,30,88,400

Real estate opex estimate (INR crore)

15,821

3,394

892

20,107

Real estate opex as % of Operating income

4.40%

3.60%

4.70%

4.30%

Source: Capitaline, Company reports, Knight Frank Research

Net cost savings in an assumed scenario of 50% Work from Home arrangement

Large

Mid

Small

Total

Operating income segment (INR crore)

Over 10,000

1,000 to 10,000

Up to

All

1,000

No. of companies

5

27

87

119

Operating income (INR crore)

A

3,56,512

94,308

19,035

4,69,856

Costs towards work from office:

No. of employees - at office (50%)

4,57,773

98,209

25,821

5,81,803

Office space estimate (sq ft) @ 80/employee

3,66,21,840

78,56,680

20,65,680

4,65,44,200

Real estate opex estimate (INR crore)

B

7,910

1,697

446

10,054

Costs towards Work From Home:

No. of employee - at home (50%)

4,57,773

98,209

25,821

5,81,803

Work From Home related costs

C

5,493

1,179

310

6,982

Earlier: Real estate opex estimate (INR crore)

D

15,821

3,394

892

20,107

Now: Combined cost (INR crore)

E= B+C

13,404

2,876

756

17,035

Cost savings (INR crore)

F= D-E

2,417

518

136

3,072

Net savings as % of operating Income

F/A

1%

1%

1%

1%

Source: Capitaline, Company reports, Knight Frank Research

Rajani Sinha, Chief Economist & National Director Research,Knight Frank Indiasaid, The research conducted by Knight Frank indicates that with WFH, the savings on Real Estate Operating Expenditure as percentage of operating income for IT companies is low. After we take into account the additional expenditure borne for setting up home infrastructure, the savings reduce further. Moreover, for large IT companies that have their own premises/ campus development the cost saving by moving to WFH will be even lesser.

Work From Home was required at the current juncture due to the Covid-19 crisis and hence most companies moved to this arrangement. However, there are concerns related to productivity, employee motivation, lack of adequate home infrastructure, etc.said Rajani

Shishir Baijal, Chairman and Managing Director, Knight Frank Indiasaid,With the imposition of the lockdown in March this year, it was imperative to enforce Work From Home, to which people adapted remarkably quickly. As the spread of COVID 19 continues and numbers still surge in India, many people still prefer to work from home, making the arrangement still relevant. However, as normality returns and the economy opens, it would be anyones guess to see what percentage of workforce continues to work from home. Going forward, we feel that the choice work from home versus work of office will be decided by many other factors and not cost savings alone.While the savings on real estate operations expenses are marginal, this saving has to be measured against qualitative aspects of the business such as lack of control, retention and attraction of talent, competitive edge, data security etc.

Source: Knight Frank Research

Advantages and Disadvantages of Work From Home

Advantages of Work From Home

Percentage

Disadvantages of Work From Home

Percentage

Time saved due to no office travel

60%

Lack of office driven social life

43%

Saving due to no cost of travel

58%

Difficulty to focus in an informal setting

42%

Opportunity to pursue personal interests

42%

Limited scope for team bonding

42%

Flexible work schedule

39%

Lower enthusiasm to work

41%

No office related distractions

38%

Challenges pertaining to team communication

36%

Better Work Life Balance

35%

Inconvenience to family life

34%

Increase in costs

23%

Difficulty to stick to a routine

22%

Source: Knight Frank India

According to the report, the major hindrances faced by IT/ITeS employees while working from home is on technology-related infrastructure. Where 64% employees face sub-optimal internet speed and 50% employees deal with lack of proper IT hardware infrastructure.

Hindrances faced by employees while working from home

Types ofhindrances

Percentage

Sup-optimal internet speed

64%

lack of proper IT hardware infrastructure

50%

Family related hindrance

42%

Absence of independent working space

31%

Lock of independent desk & Ergonomic seating arrangement

28%

Source: Knight Frank Research