Why office space is shrinking at Cognizant, Infosys and Wipro

Cognizant Technology Solutions Corp., Infosys Ltd and Wipro Ltd saw their real estate footprint shrink last year, company disclosures showed. The three companies ended last financial year with 103.2 million sq. ft of office space, down 3.7% from 107.25 million sq. ft a year earlier.

The savings from real estate support profitability even as the cutback has prompted worries whether these companies will remain India's largest employment generators, leasing vast office spaces across metros and smaller cities.

Shrinking offices

Cognizant's office space in India shrank 2.76 million sq.ft in a year. The company's annual report showed its India real estate stood at 21.6 million sq.ft. at the end of December 2023, down from 24.36 million sq.ft a year earlier. The Teaneck, New Jersey-based Cognizant, which counts close to three-fourths of its total employees in India, follows a January-December financial year.

Wipro’s office space declined from 26.03 million sq. ft in India at the end of March 2023 to 24.97 million sq.ft last year, a 1.06 million sq.ft decline, the company's stock exchange disclosures showed. Wipro also shut three of its 185 sales and marketing offices, development and training centers outside India.

Meanwhile, Infosys’s office space declined by 0.23 million sq.ft to 56.63 million sq.ft in FY24, as the Bengaluru-based IT services firm closed 11 offices to end with 265 offices.

Also read: Office space leasing revival is subject to conditions

Space optimization

“The net decline in the square foot area is due to optimization of real estate space," said Infosys in its annual report.

Post-covid, most companies are adapting to the work-from-home and from-office structure. This hybrid model has allowed companies to make better use of their current physical space," said a former CEO of an IT services firm. “Finally, a reduction in workforce has made these companies relook at their futureofficeneeds."

The country’s $254 billion IT services sector reported the weakest-ever dollar revenue growth of 3.8% in FY24, according to industry body Nasscom. The sector also added the fewest employees in a year, as four of the five largest IT services companies saw a reduction in their workforce. Noida-based HCL Technologies Ltd was the only company that reported a marginal increase in its headcount.

Also read: IT sector’s profit pie drops to 5-year low

Headcount reduction

Infosys’s workforce fell by 25,994, from 3,43,234 at the end of March 2023 to 3,17,240 in March 2024. Wipro’s headcount declined by 24,516 from 2,58,570 to 2,34,054. Cognizant ended with 3,47,700 employees last year compared to 3,55,300 at the end of 2022, a fall of 7,600 employees.

To be sure, Cognizant CEO S. Ravi Kumar had outlined a policy of working with 40% less office space soon after he took over in January 2023. “We expect the structural shift in our real estate costs to help eliminate 80,000 seats and 11 million sq. ft in large cities in India," Ravi Kumar told analysts in a post-earnings call on 3 May last year. “This shift will also enable us to invest in collaboration spaces in smaller cities while creating structural savings for the future that we can invest in our people and growth opportunities. We expect this program to help enable us to deliver margin expansion in the range of 20-40 basis points in 2024 while supporting a large deal pipeline," he had said.

Read this: TCS, Infosys witness dip in younger employees

India's IT services firms cutting back on office space also mirrors how Big Tech firms including Alphabet, Meta and Salesforce have vacated some of their office spaces in expensive cities like Dublin, London and San Francisco over the years.

In the early years of India's outsourcing industry in the late 90s, offices of the largest IT services firms played a central role in these companies winning the confidence—and business—of the Fortune 500 companies. The manicured gardens, man-made lakes, and swanky buildings hosted both global and business leaders on their visits to Bengaluru and other cities.

More than two decades later, managing these vast offices is proving costly given the pressure on profitability as several services they offer to companies get commoditized, and in the wake of existential threats posed by newer technologies like Generative AI.

Last year, Tata Consultancy Services Ltd spent ₹3,100 crore to maintain its 307 offices globally. The country’s largest IT services firm was an outlier as it increased its office space from 36.6 million sq.ft in FY24 to 38.23 million sq.ft in FY23. Wipro spent ₹1,455 crore on its physical infrastructure last year.

Also read: Poor office attendance? Forget performance bonus, TCS tells employees

Meanwhile, profitability has plunged: Last year, Cognizant, Infosys and Wipro ended with operating margins of 13.9%, 20.1% and 16.4%, respectively.

Cognizant expects to save its annual real estate costs by about $100 million in 2025.

Would IT services firms reducing office space hurt the country's commercial real estate space?

“The IT services companies may be on the back foot. But even if I go with the number of about 4 million sq.ft office space being returned or sold by IT services firms, we don’t see this having much of an impact on the commercial real estate space. This is because GCCs (tech captives of foreign companies) are emerging as the biggest buyers of large commercial office space," said Gulam Zia, executive director at Knight Frank India, a property firm.

“The only concern would be how we enhance some of these properties, in case they are old and not meeting up to the requirements of the new clients and in the locations where these office spaces are being put on the block," said Zia.