Retail realty and realityMarch 12, 2012 / By
The future growth of the Indian organised retail trade looks strong because of people’s improving spending power. Retailers are expanding in both metros and non-metro cities. However this growth has to be supported by the availability of quality real estate. We see a clear demand for malls of good quality, as vacancy rates in poor quality malls continue to remain in double digits across the country. But vacancies are not just restricted to malls; even prime location high street properties remain vacant if they do not match retailers’ specifications.
Retailers are aggressive in their expansion plans, albeit cautious about property selection, and this indicates that the demand for retail realty is strong. They are not only looking for properties that suit their operations and costs but also their customers in terms of location, facilities and overall shopping experience. However, properties on high streets across many Indian cities have a very different story to tell as many of them remain vacant. For example – Jubilee Hills Road No 36 – one of the prime high streets of Hyderabad, has a good number of properties vacant as they do not fit in with retailers’ specifications. We tried to understand the reason for this and discussed it with some developers and retailers.
Ownership of high street properties is generally in the hands of local landlords and developers. These people, mostly due to their lack of knowledge and inexperience of the organised retail trade, focus only on achieving maximum FSI (Floor Space Index). However they fail to understand that due to this limited focus in many cases they are compromising on quality. This is the reason they are unable to attract prime national and international brands that would fetch them a continuous rental cash flow.
Some of the prime reasons why retailers have to reject good location properties are less clear floor to ceiling heights, lack of parking facilities, power back up and high side air conditioning. It has been observed that when some retailers came to an agreement on these issues and leased space they were soon forced to close down for lack of customers. This, therefore, has lead to a trend where retailers pre-lease properties that are either in the planning stage or in the initial stages of construction so that they can specify their requirements without having to compromise on quality of construction, facilities and rents.
As we feel sure that the Indian organised retail trade has a bright future our leasing teams are working hard to educate developers and landlords in metros and non-metros alike to develop properties to suit retailers’ requirements, which will in turn will provide them with good rents. While landlords struggle to lease existing high street properties, their growing awareness of the problems they face will definitely lead them to upgrade their construction standards and quality in their forthcoming developments. This is expected to redefine the landscape of Indian high streets to provide better and more worthwhile shopping experiences.
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