The retail fizz

Written by Neha Pal | Neha Pal | Updated: Jan 22 2012, 07:45am hrs
With an addition of more than 6 million square feet of organised retail mall space in the country in the outgoing year, 2012 could turn out to be a more promising year for the sector despite the downturn. However, rentals will take time to recover.

The prices increased through 2011, barely keeping pace with inflation. Mall owners claim that rentals went up by 15-20% in 2011, but part of that was fizz on the FDI buzz.

Retailers blocked 'as much space as possible' due to the FDI buzz, acknowledges Arindam Kumar, vice-president (mall management) of DLF.

According to CB Richard Ellis, the Indian organised retail market has seen a number of leading national and international retailers renewing their expansion plans across the country towards the latter part of 2010, which gained further momentum in 2011.

While mall owners like DLF are hopeful prices will also peak in the new year, the range of rise being quoted does not bear this out. Prices even in non-mall segments but prized commercial areas like Connaught Place and Khan Market witnessed just a 4-5% increase in rentals.

Experts expect mall rentals are expected to peak in 2012 because of 'single brand retail' advantage, where foreign brands would no longer need the support of local partners. "This would be followed by more national players taking up spaces in malls to maintain their pace with foreign brands," says Pushpa Bector, senior VP, DLF Promenade mall in Vasant Kunj. In that expectation the DLF has raised rentals by 15-20%, but did not provide any data on occupancy.

In Mumbai, the retail market witnessed mostly increase in queries from new as well as existing retailers. Again, here the rise was on inflation variable. On Colaba Causeway, for instance, the rise was in the range of 10-11%. Despite the scarcity of mall supply there has only been a marginal increase in rents across the city.

The closure of transactions has remained sluggish on account of the gap between the expectations of developers and retailers. While landlords are quoting higher rentals on account of enhanced demand, retailers are cautious of uptake at high rental values.

But Anshuman Magazine, chairman & managing director, CB Richards Ellis (South Asia) is hopeful . "Pre-commitments in under-construction retail space in prime locations is also an encouraging sign that rental flexibility along with the minimum guarantee coupled with revenue share model has become more acceptable in the industry".

Last year also witnessed an upswing in transaction activity in Bangalore. The city already has more than 30 hypermarkets operational in leading malls across the city, while another 30-35 are in the pipeline over the next three to five years. High streets in the city have witnessed healthy absorption and rising enquiries from retailers, which is an encouraging sign for the retail market in the city.

The Chennai market observed an increase in rental values during the review period as compared to 2010, primarily across high street destinations. High streets such as Anna Nagar Second Avenue, Velachery, Adyar and Alwarpet have witnessed rental appreciation in the range of 10-13% as compared to the previous review period.

Rising demand level has been a key reason for the upward revision in rental values. While the Hyderabad market has witnessed an increase in queries and demand from retailers, this is yet to translate into actual transactions.

Rental values in Pune will continue to appreciate in leading high street destinations as a sustained preference is being witnessed amongst leading brands for prime city locations. Pune has seen a number of new malls coming up like Phoenix Market City Mall on Nagar Road besides the Plaza Center Mall on Kharadi Road. The high streets witnessed rental appreciation in the range of 3-6%, with the exception of Camac Street and Shakespeare Sarani, which witnessed rental appreciation in the range of 8-9% as it is favoured by retailers due to high footfalls. In terms of organised retail, EM Byepass and Salt Lake observed rental appreciation in the range of 3-4%, while Jadhavpur witnessed an increase in the range of 11-12% as the region is home to the South City Mall, which is popular amongst existing as well as new entrants to the citys retail market.

Overall, rental values in malls have witnessed an increment across all key micro markets in the region. Malls in Saket and Vasant Kunj in South Delhi witnessed a rental increase of around 9-12%. Amongst the suburban destinations, Gurgaon witnessed considerable rental appreciation of almost 15-16% as rentals of the top end Gurgaon malls like Ambience, Metropolitan, DT, Sahara are between R150-200 per square feet. Even in case of far-fledged malls in Sohna Road (Gurgaon), which have presence of builders like Unitech and Omaxe, prices are hovering between R80-120 sq feet. Noida witnessed stability in rental values due to limited transaction activity. High street rentals also strengthened across all leading destinations. In fact, the prices in some locations of high street showrooms have come down by 7-10%, according to real-estate broker Madan Singh.

DLF Emporio Mall situated in Vasant Kunj is one of the most expensive malls in the country with rental rates of R900-1,000 per sq ft per month. The rental rates of

Select City Walk are also between R650-750 per sq feet.

Sahil Malik, MD, Da Milano (leading high end leather brand ) told FE, We are looking for expansion in malls as compared to high streets despite the fact that malls have increased their rentals in the past one year. As a result we have also passed some costs to our consumers. We have increased the prices of our products by 10%.