Hybrid Work Shrinks Office Space for Cognizant, Infosys, and Wipro by 4 Million Sq. Ft.

In a significant shift reflecting the evolving work environment post-COVID-19, three of India’s leading IT services firms—Cognizant Technology Solutions, Infosys, and Wipro—have collectively reduced their office space by nearly 4 million square feet over the past year. This reduction is part of a broader strategy to cut costs and improve profit margins in a market increasingly dominated by hybrid and remote work models.

Reduction in Office Space

According to a recent report by Livemint.com reports, these IT giants now occupy a combined total of 103.2 million square feet, down 3.7% from 107.25 million square feet the previous year.

Cognizant:

Cognizant has significantly reduced its office space in India, cutting 2.76 million square feet to bring its total to 21.6 million square feet by the end of December 2023, down from 24.36 million square feet a year earlier. Operating on a January-December financial year, Cognizant has a considerable portion of its workforce based in India, making this reduction noteworthy.

Wipro:

Wipro has trimmed its office space from 26.03 million square feet in March 2023 to 24.97 million square feet, a reduction of 1.06 million square feet. Additionally, Wipro has closed three of its 185 offices outside India, further illustrating its commitment to optimizing office space utilization.

Infosys:

Infosys has reduced its office space by 0.23 million square feet, bringing the total to 56.63 million square feet by the end of FY24. The company has also closed 11 offices globally, reducing its footprint to 265 offices worldwide.

Reasons for the Reduction

Infosys, in its annual report, cited “optimization of real estate space” as a key reason for the reduction. The rise of remote work and hybrid work models post-COVID has prompted many companies, including these IT giants, to reassess their office space needs. The shift towards work-from-home has allowed companies to better utilize existing spaces, thereby reducing their overall office footprint. Additionally, reductions in workforce numbers have further driven the need to reevaluate office space requirements.

Impact on Workforce

The Indian IT services sector experienced weak growth in FY24, with a dollar revenue increase of only 3.8%, the lowest on record according to Nasscom. This sluggish growth has also impacted employment within the sector:

- Infosys: The company’s workforce decreased by 25,994 employees, from 343,234 in March 2023 to 317,240 in March 2024.

- Wipro: Wipro saw a reduction of 24,516 employees, from 258,570 to 234,054.

- Cognizant: Cognizant’s workforce declined by 7,600 employees, from 355,300 in December 2022 to 347,700 in December 2023.

Cognizant’s CEO, S. Ravi Kumar, highlighted a plan to reduce office space by 40%, eliminating 80,000 seats and 11 million square feet in large Indian cities. This strategic move aims to invest in smaller cities and improve profit margins by 20-40 basis points in 2024.

Broader Trends and Financial Considerations

This trend among Indian IT firms mirrors similar strategies by global tech giants like Alphabet, Meta, and Salesforce, which have also scaled back on office spaces in expensive cities. The financial burden of maintaining large offices, which once helped build confidence among Fortune 500 clients, is now prompting these companies to rethink their real estate strategies.

- Tata Consultancy Services (TCS): TCS spent ₹3,100 crore to maintain its 307 offices worldwide, even though it increased its office space from 36.6 million square feet in FY24 to 38.23 million square feet in FY23.

- Wipro: Wipro spent ₹1,455 crore on its physical infrastructure last year.

Operating margins for Cognizant, Infosys, and Wipro have fallen to 13.9%, 20.1%, and 16.4% respectively. Cognizant anticipates saving about $100 million annually on real estate costs by 2025.

Future of Office Spaces

Despite these reductions, the impact on the commercial real estate market may be limited. Experts like Gulam Zia from Knight Frank India believe that Global Capability Centres (GCCs), or tech captives of foreign companies, are becoming the main buyers of large office spaces. This shift suggests that while traditional IT firms may reduce their footprint, demand from other sectors could offset the reduction.

The challenge lies in upgrading older properties to meet the needs of new clients and ensuring they are in desirable locations. This realignment is crucial as companies seek to balance cost savings with the need for modern, efficient workspaces.

Conclusion

The reduction in office space by Cognizant, Infosys, and Wipro underscores the significant changes underway in the IT services industry. As hybrid and remote work models become more entrenched, these companies are recalibrating their real estate strategies to reflect the new normal. While this shift poses challenges, it also offers opportunities for innovation in how office spaces are utilized and managed.

Ultimately, the future of office spaces in the IT sector will depend on how well companies can adapt to changing work patterns while maintaining operational efficiency and employee satisfaction. As the industry navigates this transition, the lessons learned will likely shape the broader landscape of commercial real estate and corporate work environments in the years to come.