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

MUMBAI, 2^nd September 2020 (GPN): 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 the ‘Work From Home (WFH) and the impact on Corporate Real Estate’ report by Knight Frank India, nearly 90% 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. About 30% 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 India’s 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 India said “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 India said, “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 India said, “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 anyone’s 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.”

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 of hindrances	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

Please click here to download the report –  https://we.tl/t-F8gdd75E0O  

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