Chennai emerges as a top destination for offshore multinational companies (MNCs) establishing Global Capability Centers (GCCs), surpassing traditional leaders Bengaluru and Hyderabad. Lower commercial rental rates, ample Grade A office space, and robust city infrastructure make Chennai an attractive choice. Its strong manufacturing sector, particularly in electronics and automobiles, complements offshore businesses. Bengaluru faces challenges with a global IT slowdown and layoffs, impacting office space leasing. Chennai's GCC market expands beyond IT sectors, attracting diverse industries like banking and R&D. This trend reflects a broader regional shift, with India and other Asian countries emerging as key hubs for cost-effective offshoring solutions.
Chennai has emerged as the frontrunner in attracting offshore multinational companies (MNCs) looking to establish Global Capability Centers (GCCs), according to a new report by Knight Frank India. This shift comes as a surprise, as Bengaluru and Hyderabad were traditionally the preferred destinations for these businesses.
Several factors contribute to Chennai's rise. A key driver is its lower commercial rental rates compared to cities like Bengaluru, which witnessed real estate prices hit a decade-high in 2023. In addition to affordability, Chennai offers a significant advantage with a good supply of high-quality office space (Grade A) and a well-developed city infrastructure, creating a smooth transition for businesses setting up operations.
Chennai's strong manufacturing sector, particularly in electronics and automobiles, is another factor playing to its advantage. This established industrial base provides a complementary ecosystem for offshore businesses, potentially offering easier collaboration and access to resources within the city.
Meanwhile, Bengaluru, the former leader in IT services, has faced challenges. A global slowdown in the IT sector coupled with recent layoffs has impacted Bengaluru's office space market. Domestic office leasing activity in the city dipped by 14% year-on-year in 2023, while Chennai experienced a significant 92% growth in office space leasing during the same period (10.2 million sq. ft leased in Chennai compared to 6.1 million sq. ft in Hyderabad and 5.6 million sq. ft in Bengaluru in 2023).
The report suggests that Chennai has the potential to maintain its lead in attracting offshore businesses. The city's healthy market for GCCs is expanding beyond traditional IT sectors. New non-IT sectors, such as global banking corporations and R&D companies, are also setting up shop in Chennai, indicating a diversified and promising future for the city's business landscape.
This trend in Chennai aligns with a broader national and regional shift. Leasing volumes by offshore companies in India as a whole grew by 26% last year (27.3 million sq. ft). Many global corporations are increasingly seeking cost-effective solutions to minimize expenses, making offshoring functions a strategic option. India, along with the Philippines, Malaysia, and Vietnam, are emerging as key hubs for this growing trend in the Asia Pacific region, capitalizing on their cost advantages and skilled workforces.
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