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Real estate companies are looking forward to the RBI’s decision on new banking licences almost as eagerly as would-be bankers. New players who secure licences to run banks will have a pressing requirement for office space in a short space of time, says real estate consultancy firm Jones Lang LaSalle.
Most retail branches of banks in India operate in a space of around 3,000 sq.ft and Jones Lang LaSalle estimates that new banks will open around 25 branches each in Tier-I cities by end-2014, assuming that the RBI issues the new licences by January. This would result in demand for around half a million square feet of retail space in the first year of the foray, even if just five new licences are issued, it says.
Prime location
These spaces are likely to be situated in prime localities. In addition, setting up registered offices, corporate offices and regional headquarters would translate into demand of another 0.5-1 million sq.ft.
But the demand is likely to be higher for Grade B office space than prime properties, at least initially, partly due to its greater availability. Jones Lang LaSalle does not expect to see an improvement in vacancy rates for Grade A office spaces, despite an increase in transaction volumes.
Nevertheless, there is likely to be a push to establish more built-to-suit office spaces over the next 12 months and, in the long run, banks with new licences are expected to shift to Grade A office space that befits their stature.
Competitive advantage
The consultancy firm acknowledges that some of the organisations seeking banking licences already have their own captive space, but it asserted this will not keep them from searching for properties with better location advantages and business potential.
Subsequent expansion in Tier-II and III cities would add to demand for office space in the property market. YES Bank, for instance, ramped up its network from just 30 branches in 2000 to more than 430 as at end-June 2013.
Furthermore, the entry of new players into the banking sector is expected to spur existing banks to pursue relocation and expansion opportunities in the interest of competing for customers. The issue of new licences will impact the Indian office market for at least two years.
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