In the aftermath of the Supreme Court canceling 122 licences of telecom operators and some firms announcing exit plans, the real estate office space may experience a fall in demand.
Aniruddh Wahal, director, Occupier Services, (west) India, DTZ, told Business Standard the leasing activity could drop in the next 12-24 months, as the large remaining companies would take time to shore up businesses.
"In the short term, the leasing that was earlier expected by 10 odd companies, may now come down to the fewer remaining players, just like the total subscriber base will now be shared by this smaller set,” he said. However, the number of mobile subscribers would not change, and hence, the medium to long-term growth and consequent real estate demand would hold, he said.
Nearly, 10 per cent of the office market space was absorbed by telecom companies in 2011, according to research firms.
In 2011, 2.30 million ft was absorbed as office space by telecom companies across the seven key cities, said Cushman & Wakefield, a global property consultant.
The total office space absorption was at 28 million sq ft in 2011, according to another set of data from C B Richard Ellis, a real estate consultancy. The figure was higher at 32 million sq ft in 2010.
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The Cushman data indicated that Bangalore had the highest absorption at 0.85 million square ft, followed by the National Capital Region (NCR) and Pune at 0.47 million sq ft and 0.35 million sq ft, respectively, in 2011.
“Several new telecom entrants rented substantial Grade A office spaces across regions based on their future growth strategies. So if they wind up operation in India, that may marginally impact office demand,” said Samir Jasuja, founder and chief executive officer, PropEquity.
According to Anshuman Magazine, CMD, C B Richard Ellis (South Asia), telecom players had great expansion plans before the 2G scam unfolded. “After that, uncertainty rose, and these telecom firms slowed down on expansion plans, leading to demand falling significantly,” he said.
R R Singh, director general, National Real Estate Development Council, said, in the short term, the office space demand will fall. The leasing activity will also get impacted.
Explaining the relevance of real estate in the telecom sector, Wahal said, “Twenty-forty per cent of the total cost of telecom companies goes in real estate.” Talking of telcos, Vodafone had the highest overall take up of space in 2010 and 2011, with 0.34 million square ft leasing in Pune and Mumbai, pointed out DTZ. It said Unitech Wireless took on lease 16,600 sq ft space in NCR in an IT park in Noida in the October-December quarter of 2010. Etisalat took on lease 5,000 sq ft in Noida.
Also, Aircel concluded a 77,000 sq ft transaction in Gurgaon towards the end of 2011, which was the largest space taken up by a telecom company in the NCR during 2010-11.
A DTZ representative said, “Telecom companies preferred the peripheral or secondary business districts for their Grade A space requirements, which again goes to show the price sensitive nature of their space requirements.”
Sachin Sandhir, managing director & country head, India, at Royal Institution of Chartered Surveyors said, “Seeing the current scenario, the office space market will have an impact of about 5-10 per cent.”
However, there’s a silver lining to the story. According to Magazine, when fresh auctions take place for telecom spectrum, there would be new players, where we would see demand in not just metros or Tier I cities, but also in Tier II and III.
Singh agreed. “Things may improve in the medium and long term as new telecom players will participate in the auction,” he said. Two 2G telecom licencees-Etisalat DB and Stel — have announced they are shutting their business in India. Among others, Norway-based Telenor has said it would enter a new partnership for the telecom business. Currently, Telenor is in a joint venture alliance with real estate company Unitech.