Indian Real Estate Forum - www.indianrealestateforum.com - View Single Post - High realty rentals putting brakes on retail dream

27-02-07

High rentals in malls are beginning to threaten the viability of retailers, a trend that could derail India’s mall mania. The pricing of most of the malls in the country is now at a high of almost Rs 20,000 per sq foot, whereas the market rate is anywhere between Rs 12,000-15,000 per sq foot. Rentals are in the range of Rs 170-250 per sq ft. An average sized store of 1,200 sq feet needs to pay monthly rent of between Rs 2.5-3 lakh per month. Unless sales can justify these rentals, their survival is at stake.

Most retailers in malls across the country are finding it difficult to break even, says the study. Clearly, most mall developments will take longer to break-even, resulting in a slowdown in future investments. The study points out that some retailers have already shut shop due to the non-viability of business at current costs. For instance, more than 20 restaurants have shut down and over 7 stores selling lifestyle accessories have downed shutters in Gurgaon in the last one year. The solution lies with mall developers who could facilitate anchors with rentals lower than the original lease rentals.

The government too can play a role in arresting this slowdown. According to the study, policy makers in India need to rescind laws that restrict the legal sale of property. “What needs redressal is duplication of authorities, an avoidable red tape that only serves to delay the already long-drawn process of securing approvals.

However, despite all this and even though the Indian real estate market lacks transparency and liquidity as compared to more mature real estate markets, the market structure is changing rapidly.

The study predicts that the demand for quality real estate will grow exponentially over the next 4-5 years fuelled by the demand from organised retailers.

In fact, the total real estate required by the upcoming organised retail chains will be in the range of 500 mn sq ft, out of which 250 mn sq ft will be contributed by shopping malls. But, as per the current plans of real estate developers, only 143 million square feet of mall space is being planned over the next five years and this leaves the retail industry with a shortage of more than 40%.

27-02-07	#1
amitroy Unregistered User Posts: n/a	High realty rentals putting brakes on retail dream High rentals in malls are beginning to threaten the viability of retailers, a trend that could derail India’s mall mania. The pricing of most of the malls in the country is now at a high of almost Rs 20,000 per sq foot, whereas the market rate is anywhere between Rs 12,000-15,000 per sq foot. Rentals are in the range of Rs 170-250 per sq ft. An average sized store of 1,200 sq feet needs to pay monthly rent of between Rs 2.5-3 lakh per month. Unless sales can justify these rentals, their survival is at stake. Most retailers in malls across the country are finding it difficult to break even, says the study. Clearly, most mall developments will take longer to break-even, resulting in a slowdown in future investments. The study points out that some retailers have already shut shop due to the non-viability of business at current costs. For instance, more than 20 restaurants have shut down and over 7 stores selling lifestyle accessories have downed shutters in Gurgaon in the last one year. The solution lies with mall developers who could facilitate anchors with rentals lower than the original lease rentals. The government too can play a role in arresting this slowdown. According to the study, policy makers in India need to rescind laws that restrict the legal sale of property. “What needs redressal is duplication of authorities, an avoidable red tape that only serves to delay the already long-drawn process of securing approvals. However, despite all this and even though the Indian real estate market lacks transparency and liquidity as compared to more mature real estate markets, the market structure is changing rapidly. The study predicts that the demand for quality real estate will grow exponentially over the next 4-5 years fuelled by the demand from organised retailers. In fact, the total real estate required by the upcoming organised retail chains will be in the range of 500 mn sq ft, out of which 250 mn sq ft will be contributed by shopping malls. But, as per the current plans of real estate developers, only 143 million square feet of mall space is being planned over the next five years and this leaves the retail industry with a shortage of more than 40%.