The reason why mall developers are nowoffering space to hotels has more to do with the floor space index (FSI) and less with utility. In the case of retail, food, entertainment and multiplex, it is not always possible to utilise the complete FSI of the plot.
The concept of mixed-use development with retail, entertainment, shopping and accommodation all under one roof helps diversify the tenant mix in the total construction, and also de-risks the developers investment. It also allows the developers to utilise the FSI and location.
Such developments leverage on the location and provide multiple solutions under one canopy.
Mixed-use developments have evolved to increase the viability of projects and to utilise the location advantage. Residential and office markets are witnessing buoyant growth and are considered as relatively more risk-free development.
A new concept which is also evolving, particularly due to FSI norms, is serviced apartments as an offering within mixed-use developments.
Malls have a good reason to give space to hotels or office complexes:
It increases the viability of project and de-risks it;
It helps utilise available FSI optimally;
It makes the usage relatively more diversein some cases mixed use is the best use for real estate development; and
It fits with floor plate sizes. Retail historically does not work on more than three floors.
There are already examples of existing and upcoming projects where shopping, entertainment, residential and retail co-exist with office space. The existing ones include Treasure Island at Indore, Inorbit Mall at Vashi, and the upcoming ones include Nirmal Lifestyle, Market City Projects, Phoenix Mills, Express Mall Chennai and DB Mall at Bhopal.
Upcoming mallswhich have a proposed metro station within or parallel to their projects are expected to draw in considerable footfalls, reflecting positively on retailers sales. An example would be Mantri Square in Bangalore.
Internationally, mixed use developments have been used to form the social fabric and have done well.
Mixed-use developments create a captive catchment for the retailers and other components. The model is fairly successful in both metro and Tier I cities. In fact, in the light of changing retail dynamics, the response for such projects in Tier-II cities has also been encouraging.
Advantages of mixed use developments to retailers:
They add captive foot falls;
Food and impulse item sales increase;
They generate a wholesome social fabric and create destination developments; and
In some cases, mixed use developments can also help decrease the base rental and increase revenue for developers who operate on a revenue share model, which also increases feasibility for retailers.
Disadvantages to retailers:
If the customer flow is not properly designed and enough parking space is not available, a mixed-use project can result in a bad experience for customers, with obvious negative repercussions on the entire development.
The writer is AVP-retail services, Jones Lang LaSalle Meghraj