Retail realty: Better future ahead

Jul 27 2013, 09:13 IST
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Retail realty: Better future ahead		Retail realty: Better future ahead
SummaryThe slump in residential realty has taken its toll on retail developments.

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

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