Authored By: Salai Kumaran, CEO of IndiaLand Group
Work from Home (WFH), also known as “Flexi Working,” emerged as a refreshing concept during the pandemic and transformed the traditional work model. Interestingly, this trend continues to dominate the Indian IT and ITES sectors, even years after the pandemic.
Historically, people have worked from their home or nearby. However, the Industrial Revolution in the 19th century marked a significant shift. During that phase, workers began moving from villages to factories, changing the traditional domiciled working system. Meanwhile, the early 20th century saw the rise of common office spaces, driven by the need for collaborative work environments.
It was the 21st century, particularly post-2010 when the IT/ITES sector in India began adopting WFH to enhance employee comfort and reduce attrition rates. However, during the pandemic, WFH became a necessity for business continuity. During the initial phases of the pandemic, the IT/ITES companies achieved 70-80% productivity levels. Since then, several trends have come into existence, reshaping commercial real estate in India.
Post-pandemic Trends and Challenges
As the pandemic slowed and companies expected the employees to return to the office in 2022, new dimensions and challenges emerged. Many employees resorted to moonlighting (multiple employment at a single time) to earn more money and were hesitant to lose the comfort of WFH. The traffic congestion in metro cities added to the resistance to returning to the office.
It drove the companies to come up with software solutions to combat moonlighting and gain better control of operations. However, with time, they established that employees in the IT/ITES industry prefer the flexibility and comfort of WFH. The resistance forced companies to re-evaluate their strategies and make returning to the office more attractive through measures like hybrid models where employees are required to come to the office on alternative days.
To make the workspace more attractive, companies enhanced office interiors with modern designs. They are designing collaborative spaces to encourage team interactions, while flexible working hours and seating arrangements, such as hot desks, are becoming standard. These features, along with the hybrid model, were implemented to incentivize employees to return to the office, especially in cities where traffic and long commutes discourage them from in-office work. While these adjustments have helped companies balance the comfort of WFH with the need to maintain a physical office presence, the initial response weaned out slowly.
Impact on Commercial Real Estate
The shift to WFH has had a notable impact on the commercial real estate market. To begin with, companies capitalized on the opportunity to reduce their real estate and transportation costs, which typically amounted to an estimated 3-5% of their turnover. However, this trend of space cancellations by Indian and multinational companies posed new challenges for developers who had to adjust their strategies to meet the changing demand.
The pandemic forced the rapid adoption of WFH models, providing continuity to businesses, particularly in the Indian IT/ITES sector. This increased international credibility for Indian operations led to tremendous growth in the IT/ITES industry between 2020 and 2024. Despite the early setbacks caused by the pandemic, the IT/ITES sector is projected to grow at a CAGR of 7.8% from 2023-2030.
On the other hand, the demand for office real estate declined significantly. For instance, in 2020, a drop of 15% was recorded as companies embraced the WFH model and vacated their office spaces. However, the market rebounded with a 10% increase in 2021, 12% in 2022, and an 8% rise in 2024.
Though WFH negatively impacted office real estate demand, the growth of the IT/ITES industry mitigated the damage. The industry’s focus on redesigned workspaces, such as larger workstations, collaborative spaces, and flexible seating, increased the square footage per employee. These changes have prompted commercial real estate market growth, which recorded a CAGR of 5.4% from 2019 to 2024.
In a nutshell, the WFH model has become an inevitable part of the work culture, which focuses on continuity, work-life balance, and addressing various constraints. As per Forbes, 12.7% of the workforce works from home full-time, and 28.2% of the workforce follows a Hybrid Model in India. Meanwhile, about 16% of the companies are operating fully remote.
This suggests that a significant portion of the IT/ITES workforce leads the new normal. Judging by the trends, it seems unavoidable that 25% to 30% of the employees at the bottom of the ladder, particularly jobs like programmers, call center operators, and IT support services, will remain partly or fully in the WFH setup.
Some companies were able to double their headcounts by accepting this new normal. However, the shift also raises concerns about data safety, cultural implications, and the psychological well-being of employees, for which the industry is working on various solutions. Recent research by MIT states that the WFH resulted in 18% less productivity.
While the new normal offers numerous benefits, it poses challenges for the commercial real estate sector. This is because it is feared that the growth rate of space takeoff will be less proportionate to the industry’s growth rate due to partial WFH in this industry.