Office Prices and Outsourcing

Office Prices and the Outsourcing Industry

India’s main problem with outsourcing is that the rents are getting so high, that Indian outsourcing companies must raise their rate for outsourced work to be able to cover their costs. Looking at a list of global office occupancy costs worldwide from scribd.com, I can share some of this information with you.

PSF – costs in dollars per square foot for office space in 2010.
Numbers have been rounded to the nearest dollar

Hong Kong 161
London 130 (West End)
Tokyo 101
London 62 (Docklands)
Mumbai 60
Delhi 59
Singapore 59
New York 42 (Midtown)
Los Angeles 39
Madrid 37

The irony is that in places like New York where incomes are roughly five times what they are in Mumbai for similar work, the price is 43% higher in Mumbai for office space. In the long run, America has many advantages that lead to national economic stability. We have endless land, and fast roads and airports that connect every single corner of the country conveniently to each other part of the country. There very few strikes effecting transportation, and political stability is something we take for granted. India has none of these advantages. It will take India 40 years of hard work to catch up to Western countries in terms of infrastructure.

One aspect that doesn’t show up in the above quoted statistics is that the data is for certain neighborhoods where offices are generally located. There are other parts of the above metros further away from the downtown that have less expensive prices. For example, in Delhi, it is $59 psp in the business district, but I’m looking at an ad in Noida where 1500 sf of office / factory space are being offered for rps35,000 / month which translates into less than one dollar per square foot per month. So, prices can vary tremendously within the same metro area depending on conditions.

High office prices have run many call center outsourcing businesses out of Bangalore, Mumbai, and Chennai, leading them to outskirts of Delhi, Assam and other areas where land is plentiful. Mumbai is on a peninsula, making land a scarce commodity, especially with the lack of skyscrapers which help to conserve land. Bangalore is surrounded by hills and mountains making growth difficult. Chennai is bordered by an ocean on one side making expansion possible only to the West. But Delhi has land around it and remote parts of India still have cheap land to expand to. So the future of Indian outsourcing work seems to keep migrating further and further away to where the cheap land and labor is. In another few decades, much of the outsourcing work will be redirected out of India entirely, perhaps to Africa, Bangladesh, and other areas.