flag  India flag
sub icon

Retail realty

The top eight cities have added just short of 5 per cent to their total mall supply in the first six months of 2013. This is a strong number considering each square foot of this addition is made more costly by the sluggish pace of growth in consumer purchase. Jaideep Wahi, director, retail agency, Cushman & Wakefield India says, "The total mall supply has risen by 2.9 million square feet added during first half of 2013 adding to the total stock at 65. 9 msf across eight major cities."
Wahi and other analysts, however, are being cautious. With the announcement of the liberalisation of foreign direct investment (FDI) rules for both single and multi brand retail, 2013 should have seen catalogues opening fast. That has not happened so far.
Research by DTZ India shows that retail rental values have largely remained flat or grown by approximately 10 per cent over the last four quarters. There is a reason. Vacancy levels are high.
"Cumulative vacancy levels for top seven cities (Mumbai, Delhi NCR, Bangalore, Chennai, Kolkata, Pune and Hyderabad) stands at around 13 per cent in Q2 2013, up 2 per cent over the previous quarter," says Anshul Jain, chief executive of the company.
According to him, there is what can be loosely described as a mixed response in the retail sector. Several retailers are cutting back on expansion plans, realigning their markets and stores. "Other the other side, international retailers such as VeroModa, Starbucks, Marks & Spencer are continuing with their expansion plans across many cities," says Jain.
Malls in India
The first mall development, on the lines of what is found overseas, happened in Chennai in 1986. However, the majority of mall developments happened in 2000.
This was also a period when the economy underwent several stages in liberalisation, which fuelled a consumer boom. "During the pre-crisis period, the demand for retail spaces from retailers was robust, fuelled by high economic growth and rising consumerism. Consequently, most of the supply from retail developers across various Indian cities witnessed healthy absorption levels," says Anuj Puri, chairman and country head, Jones Lang LaSalle India.
In 1997, after 100 per cent FDI in cash and carry / wholesale format was allowed through government approval route, players such as Metro AG entered the Indian market. Others such as Carrefour and Walmart also followed suit after wholesale cash and carry was approved under the automatic route. Since 2006, a number of major international premium apparel and lifestyle brands expanded their reach in the country partnering with local players like Arvind Brands, Reliance Retail, etc.
This period was also a time when the residential real estate market was expanding, new suburbs were coming up and tier II and III cities that were a blip on the radar started emerging as new poles. "In the initial years of the development of retail real estate sector, majority of the malls were located within the city limits, either in the central business districts or in suburban locations. As the city limits expanded to peripheral areas, retailers too began to expand to newer locations with underlying cost advantages too," says Wahi.
Then the economic crisis happened in 2007-08. Credit flow to projects dried up resulting in several residential developments stuck mid-way. Mall developments, hoping to capitalise on the upcoming residential catchments, too faced delay with developers having to rework strategies.
"With the advent of the crisis, the sector saw a remarkable correction in absorption levels. Post-crisis, the sector saw increasing demand polarisation, with good malls clearly overtaking poorly-designed and badly located centres," says Puri.
Amid this cautious scenario, the government brought in a major change for the sector: Up to 100 per cent FDI in single brand retail in single brand stores is now allowed. The other significant change is 51 per cent FDI in multi-brand retail, but that has unleashed a different set of problems the government has to solve at a political level.
In a further sop to global retailers, the department of industrial policy and promotion (DIPP) moved a Cabinet note this week, dropping the restriction that they can operate only in towns with a one million plus population. The DIPP has argued that since states or union territories with no cities having a population of less than a million will have the right to allow the retail companies to set up shop anywhere, the states with larger populated cities should also get a similar benefit.
If approved, this would provide a fillip to retail real estate, as companies such as Walmart and Carrefour typically have store formats requiring large areas. Experts, however, believe that the flip-flops happening over FDI in multi-brand retail will not radically alter the direction. "There has been a continuous change in retail FDI policies but its only being aimed for improvement. So while in short term there might be concerns, however, the sector is bullish on long term perspective as most international retailer are expanding operations in India," says Jain.

No Replies
Leave a Reply Here
Enter Your Name
Enter your Email
Enter your Contact No
Enter Your Message
Enter the code