BackAir India to invite fresh bids for Nariman Point building
The move is part of a larger exercise by the airline to raise money by renting, redeveloping or selling its properties
Premium(Abhijit Bhatlekar/Mint)
Bangalore/Mumbai: Air India Ltd will invite fresh bids from potential tenants for some floors in its 23-storey commercial tower in south Mumbai’s Nariman Point business district, two Air India officials said.
The state-run airline will soon put out a so-called request for proposal offering nine-year leases and seeking price bids, said the two officials, who declined to be named. State Bank of India, the country’s largest lender, quoted the best price in the first round of bidding in October and took up four floors on leases ranging from three to five years.
India’s oldest airline is offering 15 floors on lease at a minimum asking rate of around ₹ 300 per sq. ft with additional charges for space on the higher floors. The airline has decided to retain only four floors—the ground, 21th, 23rd and 24th floors—of the building, also its corporate headquarters.
Leasing out space in the Nariman Point building is part of a larger exercise by Air India to raise money by renting, selling or redeveloping its properties in various cities. Air India plans to monetize around 105 properties across cities in India as well three in Tokyo and London, Mint first reported in November. The debt-laden company expects to raise at least ₹ 500 crore in the current fiscal and ₹ 5,000 crore in 10 years from the effort.
Air India had ₹ 47,226 crore of debt as on 31 July on its books, and accumulated losses of ₹ 27,000 crore over the past five years.
The government in April last year approved a ₹ 30,000 crore package to bail out the loss-making airline, including an upfront equity infusion of ₹ 6,750 crore and assured equity support of ₹ 23,481 crore until 2020-21.
“Leasing out the floors of iconic Nariman Point is a part of a turnaround plan and to boost the ancillary revenues. Air India is trying to get revenue from non-core operations too," said one of the Air India executives cited above.
The airline, which said last year that it was moving its headquarters to New Delhi from Mumbai, plans to allow companies to advertise on the back of boarding passes and on the headrests of seats on its planes, too, as part of the revenue raising effort, this official said.
In the Nariman Point building, the Air India booking offices on the ground floor will remain and so will the conference room on the 23rd floor. The operations of the airline would largely be moved to Santa Cruz, near the domestic airport.
Besides State Bank of India, the Sahara group and the Directorate General of Shipping took part in the first round of bidding, but their bids were rejected by Air India, according to the two officials cited above.
Property analysts said the building, a Nariman Point landmark, measures around 220,000 sq ft. Given that building efficiency is higher in Nariman Point than new business locations such as Bandra-Kurla Complex, ₹ 300 per sq. ft may not be an unreasonable price although it is on the higher side, the analyst said.
Efficiency in Nariman Point would be around 85% while in BKC it would be 65-67%. Efficiency is typically calculated as the ratio between built-up area and the carpet area. The higher the efficiency, the less is the difference between the two; it implies the wastage is less.
Ravi Ahuja, executive director at property advisory Cushman and Wakefield, said a lot of office space is lying vacant in Mumbai, with nearly half a million sq. ft in BKC alone.
“The vacancy levels in Nariman Point would be similar and demand would depend on the availability of large spaces of 20,000-40,000 sq. ft, amenities and ample car park," said Ahuja.
Lease rates in BKC hover around ₹ 250-260 per sq. ft with the exception of Maker Maxity, where rates are in the range of ₹ 300-320 per sq. ft and upwards. A January note by property advisory CB Richard Ellis said concerns over cost reduction and a cautious approach by occupiers had a negative impact on leasing activity across key markets in India.
“With major corporates continuing to review expansion plans and focusing on improving existing space utilization to control costs, key markets across India witnessed a decline in absorption of prime office space during 2012 to 26 million sq. ft compared to 35 million sq. ft in 2011," CB Richard Ellis said.
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