A Maharaja’s treasure chest

ES
All seems to be well with Air India operationally, but the national carrier's plan to rent out space in its iconic building at Nariman Point, Mumbai, is likely to hit a pocket of turbulence as the area is losing sheen as a hub of commercial realty.

The difficulties in renting out 16 of the building's 22 floors have started with the airline receiving only two bids till November 3 — the last date for receiving the request for proposal from interested parties. The lukewarm response forced Air India to extend the date till November 29, with a hope that more bids may trickle through.

It remains to be seen whether the airline will be able to find tenants for its property. The fact that Air India Building was not lapped up points to the emergent scene where Nariman Point, which houses several businesses, is fast losing out on the prime commercial space rankings in the financial capital.

EMERGING poles

Nariman Point always had an aspirational quotient, which drew businesses to set base in one of the many towers that dot the landscape with the Arabian Sea for company. Even the sea view and the proximity to the Queen's Necklace are not enough to charm the prospective tenant, for other realities have taken over.

The first among them is the price factor and the emergence of other business districts that offer many an advantage, such as Bandra Kurla Complex or BKC, Lower Parel and Prabhadevi.

"With a per square foot rent of R275 to R325, Nariman Point is expensive and offices are being shifted to areas with lesser charges. Companies with deep pockets are shifting to BKC, others are shifting to Prabhadevi and the cheapest office space are available in Lower Parel," says Ramesh Nair, managing director (western region) of international property consultancy Jones Lang LaSalle.

The monthly per square feet rates at BKC is Rs 250 and above followed by Prabhadevi at Rs 200 plus. Lower Parel is the cheapest among them at a per square feet rate of Rs 150 plus.

Analysts add that it is not just the price factor. The various buildings at Nariman Point also lack a lot of the modern amenities that companies are finding in the suburbs.

"The 50-odd buildings at Nariman point were all built between 1975 and 1978 and the safety and security features in these buildings are old and a lot of companies would not prefer these when better features and amenities with contemporary touch come at a lower cost in other areas," says Nair.

Among other issues, the car parking space provided to tenants is also limited, at one bay per 3,000 square feet of rental space, while the other emergent areas provide one for every 1,000 square feet. Further, there is another change gaining ground: managements are warming up to the idea of keeping offices nearer to places where employees reside. "Shifting to areas like BKC brings them closer to their employees, who stay in the western suburban areas," says Nair.

Due to lower interest in the area, rents have seen a correction climbing down significantly from the R450 to R500 per square feet being quoted earlier. In the first quarter of the current financial year, Nariman point has seen a marginal absorption of 10,000 sq ft compared to BKC, where 35,000 sq ft has been taken up.

Analysts also add that the slowdown in the economy has brought down the demand in the real estate sector and office space is one such segment.

"Slowdown in the economy is also one of the reasons for the fall in demand for office space and we have projected that the overall demand for office space will be 20 per cent low this calendar year compared to 2011," said Ravi Ahuja, executive director (office transactions), Cushman & Wakefield India.

The firm in a report released in the beginning of this year, had projected that the demand for office space in key Indian cities will be of 30 million square feet, a decline as compared to the 36 million square feet in 2011.

Maharaja's gamble

Industry sources feel that getting tenants might be difficult but not impossible for Air India as there have always been takers for properties in Nariman Point.

"The area has lost its sheen as a price office space is true but we will be able to rent it out," said a senior Air India official.

"The demand is always there because a large number of banking and financial institutions would always prefer to have offices in a posh business district — take the case of HDFC that shifted recently to Nariman Point," says Ahuja.

Another Mumbai-based analyst also feels that the airline needs to market its property properly to attract tenants.

"Air India will surely get a tenant just that they need to market it well. Not many interested parties know that the company is looking for tenants for its building also a little bit of tinkering with the rentals may help. It is just a matter of time before the airline gets a tenant," said a Mumbai-based analyst, on condition of anonymity.

Recently, HDFC group has leased offices in Lever House in the area and Hindustan Unilever, owners of the building, intitially had to face difficulties in finding a tenant.

The national carrier aims to raise R500 crore in the first year through sale of its property globally, and is in the process of hiring a real estate consultant to advise them on the issue. The airline also projects an annual income of R100 crore from its eponymous building. Can the Maharaja make it happen? Nariman Point is waiting and watching.

— mihir.mishra@expressindia.com

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