Be Afraid, Be Very Afraid!

The Economic Times - SEPTEMBER 26, 2003

Business process outsourcing is a hot topic in real estate circles lately. Office jobs being shipped overseas to employees who work for a fraction of the wages of their US counterparts. A recent article in Forbes (Giant Sucking Sound) discussed the trend in light of a decision by EDS to lay off at least 2,750 higher-paid workers, mostly in the U.S. and Europe. But most professionals have not been concerned because the trend did not directly affect them. Their industry, or their highly skilled professional job was not at risk. Well, things have changed.

A new company, Global Realty Outsourcing, has already hired 350 real estate staff in India. Over 50 per cent are Chartered Accountants or MBAs. The firm has anounced that they will hire 1,000 more by June 2004. This total includes more highly skilled professionals. The services to be provided range from low level financial analysis such as developing discounted cash flow models, title support and mortgage processing, to higher-level services such as loan underwriting.

And who is behind this company? The company is funded by Capital Trust (Sam Zell), CDC Capital Partners, Citigroup Investments and Wachovia Securities. Need I say more?

Ocwen Financial Corp. has hired over 800 workers in India over the past two years while their headquarters staff was cut from a high of 1,000 to less than 500 today. The firm was recently awarded a $95 million contract to manage the U.S. Department of Veterans Affairs' foreclosed homes. A furor erupted when lawmakers heard work on the contract might be handled by the newly hired workers in India.

Another firm, OfficeTiger, founded by two youthful American partners Jo Sigelman and Randy Altschuler, has targeted the major US investment banks for highly skilled investment banking outsource assignments. A third of it's 1,000 staff have Masters degrees and average age 26. Requests are typically processed at a rate of $15 an hour rather than $50-$60 here. The company's staff operate in three shifts around the clock so that bankers, lawyers and their staff who no longer have to work late, running up fees, overtime and taxi costs.

Companies like Morgan Stanley, JP Morgan Chase and Moody's Investor Service are already contracting out research tasks or setting up their own support centers in India. All are wary of revealing it for fear of alienating clients, the public and their own staff in the US. But the pace of offshore outsourcing is increasing as evidenced by a quick review of dozens of recent hiring announcement published by the Indian press and listed at BPOIndia.org. Brings new meaning to the term "jobless recovery", jobless in the US only.

An article in PropertyWeek, notes that 23 million sf of speculative office space is being built on the outskirts of Delhi. In fact, it was speculative space, but much of it is now prelet. Around 3 million sf of demand from London occupiers now exists in India. Up to 150,000 existing and future UK office jobs could end up in India within five years, equating to 15 million sf of office space according to the article.

The implications for the US office market are far more dire. A Deloitte Research forecast report released in April reported that the world's top 100 financial companies will move 1 million mainly back-office and technology-related jobs to India by 2008. Using a conservative per sf/per employee ratio of 220 sf, that translates to a demand drop of 220 million sf in the US office sector over the next 5 years solely from the move of jobs overseas.

The silver lining to the dark cloud of offshore job movement is that companies are cutting costs and becomming more competetive. But this may be small consolation to investors in the U.S. office sector, particularly those with holdings in secondary and tertiary markets and in large back-office-type real estate like call centers. Sphere: Related Content