Air India's Monetization Plan Faces Headwinds in Challenging Real Estate Market
Air India's plan to lease vacant floors in its Nariman Point headquarters is encountering difficulties due to the prevailing challenging market conditions. Despite this, Civil Aviation Minister Mr. Ajit Singh expressed confidence in the plan's eventual success, stating his determination to effectively monetize Air India's real estate holdings. "However Civil Aviation Minister Mr. Ajit Singh said that he is confident of working out the plan to monetize the real estate properties of AI."
Monetization Strategy and Challenges
Air India's real estate monetization strategy aims to generate ₹5,000 crore by leasing or selling properties located in major metropolitan areas such as Delhi and Mumbai. The national carrier possesses a substantial real estate portfolio, encompassing offices and properties across various Indian cities and international locations.
The initial plan involved leasing out 11 floors, totaling 1.6 lakh sq. ft., of the 23-story Air India building in Nariman Point. However, due to a lukewarm response from potential lessees, the bidding process had to be postponed. A new bid date has been set for November 29.
Currently, Air India occupies only six floors of the building, with three floors already leased out. The remaining floors remain vacant, representing an untapped revenue stream. In the long term, the airline intends to relocate its headquarters to the national capital and lease out the entire Nariman Point building.
Mr. Singh acknowledged the obstacles presented by the current real estate market dynamics, citing the building's location in an older business district, from which businesses are increasingly migrating to newer areas. He attributed the plan's initial setback to the prevailing challenging market conditions. "Mr. Singh acknowledged that the plan to monetize real estate properties was obstructed due to sectoral problems. He pointed to the fact that the building is located in an old area from where people have started shifting to new areas. The severe situation which the real estate faces is a main reason of the failure." Regardless of these challenges, Mr. Singh reiterated his confidence in the plan's eventual success, revealing that Air India has already engaged a real estate consultant to facilitate the process.
Market Analysis and Expert Opinions
Real estate consultants and property experts have expressed reservations about the desirability of the Air India building in Nariman Point, questioning its ability to meet the contemporary office requirements of businesses today. They emphasize the growing trend among businesses and corporations to relocate to areas like Lower Parel and the Bandra Kurla Complex (BKC), where rental rates are more competitive.
Real estate consultant Mr. Raja Seetharaman explained this shift, stating that rentals in Lower Parel and BKC are approximately ₹200 per sq. ft., compared to ₹250 per sq. ft. in Nariman Point. "According to real estate consultant Mr. Raja Seetharaman the business people and the Corporates think of shifting to areas like Lower Parel or the Bandra Kurla Complex (BKC) where rentals are lower. The rental of these areas is Rs.200 per sq. ft. while the same at Nariman Point is Rs.250 per sq. ft." He cited the case of Hindustan Unilever, which was compelled to lease its Churchgate property at a lower rate than initially anticipated, settling for ₹200-₹250 per sq. ft. instead of the targeted ₹350 per sq. ft. "Mr. Seetharaman pointed the incident in which Hindustan Unilever was forced to bid their real estate property at a lower rate than they expected. Hindustan Unilever planned to lease their Churchgate property at Rs.350 per sq. ft. Yet the deal was fixed at Rs.200 per sq. ft. to Rs.250 per sq. ft."
Another real estate consultant corroborated this view, highlighting the increasing popularity of BKC due to its competitive rental rates. He expressed skepticism about Air India's ability to secure leases at its desired rates.
A 2011 report by Jones Lang LaSalle indicated that Air India is incurring an annual loss of approximately ₹80 crore by leaving the Nariman Point building, constructed in the mid-1970s, unutilized. This calculation was based on the then-prevailing rental rate of ₹300 per sq. ft. in Nariman Point. Achieving this rental rate now appears increasingly unlikely.