Home Retail Expert Speak: Retail real estate regains sheen

Expert Speak: Retail real estate regains sheen

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High vacancy in the post-GFC (global financial crisis) years, coupled with a poor consumer and retailer sentiment, led to many developers either deferring launch of proposed retail projects or shelving them altogether. Therefore, the current decade started with falling new supply and demand from retailers.

Retail real estate regains sheen
High vacancy in the post-GFC (global financial crisis) years, coupled with a poor consumer and retailer sentiment, led to many developers either deferring launch of proposed retail projects or shelving them altogether

Post that, there was a period of global economic weakness, coupled with domestic problems pertaining to negative influence of the pre-election uncertainty on business environment as well as controversies surrounding in the retail sector (with a majority of opposition parties trying to oppose opening up of multi-brand retail for ), all of which kept the consumer as well as retailer sentiment weak. Also, high consumer price inflation during the 2011-14 period contributed to a poor consumer and retailer confidence.

The general election and its outcome turned out to be a key turnaround moment as a new pro-reforms Government was elected to power with unprecedented majority. This helped many retailers take a positive view on rise in employment numbers, disposable incomes and, therefore, the growth of retail. A gradual softening stance of the newly-elected Government on foreign investment in retail excited international retailers such as IKEA, Walmart etc.

retail-1After witnessing a dull period in terms of new supply of Grade-A malls during the previous three years, 2015 saw a remarkable jump in completions. Major completions during the quarter came in the latter half of the year (coinciding with the festival season in India) and included the and in NCR Delhi, VR Mall in Bengaluru and Acropolis Mall in Kolkata, besides a few others. This time around, malls were experiencing healthy rate of pre-commitments and as a result, their occupancy during commencement was remarkable. Despite rise in completions in 2015, vacancy rate fell across major cities of India.

Rents get an upward nudge

Mall rents had mostly remained stagnant for most part of the 2012-14 period owing to reasons mentioned above. However, after May-2014 when the elections happened and results were declared, rents started to go up marginally as enquiries from retailers went up.

 Baba Ramdev's Patanjali Ayurveda Limited (PAL) is all set to launch an ambitious Rs 2,000-plus crore ($300 million) project in Uttar Pradesh. Officials say the proposal has found "favourable response" from the SP government and has, in fact, received the nod of Chief Minister Akhilesh Yadav. It will now be taken to the state cabinet next week for approval. Chief Secretary Singhal told IANS that the venture was first of its kind aiming at integrating farmers to the markets and the wider world. "Chief Minister Akhilesh Yadav has been telling us to ensure that all developmental projects and investments have something substantial to offer and the Patanjali project is one such," he added. Sources said two stretches of land, totalling 400 acres, have been identified in sectors 22E and 24A of Greater Noida on the Yamuna Expressway for setting up of a Super Mega Food and Herbal Park, and at the villages of Safa and Moza in Jhansi. An official said the group's proposal came just a fortnight back but was "attended to at a lightening speed", and the Steering Committee of officials headed by the Chief Secretary Deepak Singhal -- which takes a call on proposals above Rs 200 crore -- stamped its approval on the project, after which the matter was taken to the Chief Minister for his consent. The high point of the project is that for the first time something so big is being linked to the impoverished Bundelkhand which will see a chunk of Rs 500 crore going to it. All major purchases would be done from Bundelkhand. A senior official of the Rs. 5,000 crore PAL group told IANS that they were "pleasantly surprised at the alacrity at which the project was considered" and taken ahead which would take the state government to another level. Officials said that in line with existing state policies aimed at attracting investments, the project would receive sops like 150 per cent VAT concession, 50 per cent EPF contribution for three years (after three years of operation), five per cent infrastructure interest subsidy and five per cent capital investment subsidy. "The state government has also committed 100 per cent electricity duty exemption and 24x7 power supply to the units. Other than this, the existing 25 per cent rebate on land rates and a 100 per cent stamp duty waiver are also likely to be given to the Patanjali Group. The Mandi (wholesale market) fees have also been exempted for five years on purchase of raw material," an official told IANS. Patanjali officials said the integrated unit would take two years to complete and will help build capacity for the growing demand for its agro, agriculture, food, herbal, cattle feed and dairy products. The company says it will double its turnover to Rs 10,000 crore this fiscal (till March 31, 2017). Sources also said that the Chief Minister had given a carte blanche to his team of officials to speed up the process of getting companies to invest in the state. "Right from the start the Chief Minister has made his intentions clear on investment and infrastructure improvement," an official said, adding that "though, initially, industry showed reluctance largely due to its experience with the previous government, they are now literally queuing up to invest in the state". Officials said the state had received investments of Rs 5,200 crore in the last one month. With the state going to polls early 2017, such developments, political observers say, may well bring in goodwill and possibly votes for the Akhilesh Yadav government, which is seeking a return to power. Tenants prefer superior malls

This period also witnessed a key transition in the organised retail space across major cities. Retailers were now looking for malls that could be classified as quality structures – modern design that promotes good brand visibility, reasonably large floor-plates with ample open areas, professional mall management practices, good upkeep, suitable tenant profile and a good catchment. These factors helped the market to characterise mall properties into three buckets – superior malls, average malls and poor malls.

Over the years, the best retail tenants started to approach only the superior malls, leaving some average malls and poor malls behind in the new cycle of resurgence in retail. Consequently, the vacancy rate in superior malls was under 10 per cent as of year 2015, while average and poor malls were left vacant in the range of 15-40 per cent on an average. Also, in terms of rental values, the superior malls witnessed a sharper rise, while in the average and poor malls, they had even dropped in a few cases. The retail real estate market was in a period of transition where mall quality, average footfalls and trading densities were given higher importance than merely having a retail structure at the right location.

 Baba Ramdev's Patanjali Ayurveda Limited (PAL) is all set to launch an ambitious Rs 2,000-plus crore ($300 million) project in Uttar Pradesh. Officials say the proposal has found "favourable response" from the SP government and has, in fact, received the nod of Chief Minister Akhilesh Yadav. It will now be taken to the state cabinet next week for approval. Chief Secretary Singhal told IANS that the venture was first of its kind aiming at integrating farmers to the markets and the wider world. "Chief Minister Akhilesh Yadav has been telling us to ensure that all developmental projects and investments have something substantial to offer and the Patanjali project is one such," he added. Sources said two stretches of land, totalling 400 acres, have been identified in sectors 22E and 24A of Greater Noida on the Yamuna Expressway for setting up of a Super Mega Food and Herbal Park, and at the villages of Safa and Moza in Jhansi. An official said the group's proposal came just a fortnight back but was "attended to at a lightening speed", and the Steering Committee of officials headed by the Chief Secretary Deepak Singhal -- which takes a call on proposals above Rs 200 crore -- stamped its approval on the project, after which the matter was taken to the Chief Minister for his consent. The high point of the project is that for the first time something so big is being linked to the impoverished Bundelkhand which will see a chunk of Rs 500 crore going to it. All major purchases would be done from Bundelkhand. A senior official of the Rs. 5,000 crore PAL group told IANS that they were "pleasantly surprised at the alacrity at which the project was considered" and taken ahead which would take the state government to another level. Officials said that in line with existing state policies aimed at attracting investments, the project would receive sops like 150 per cent VAT concession, 50 per cent EPF contribution for three years (after three years of operation), five per cent infrastructure interest subsidy and five per cent capital investment subsidy. "The state government has also committed 100 per cent electricity duty exemption and 24x7 power supply to the units. Other than this, the existing 25 per cent rebate on land rates and a 100 per cent stamp duty waiver are also likely to be given to the Patanjali Group. The Mandi (wholesale market) fees have also been exempted for five years on purchase of raw material," an official told IANS. Patanjali officials said the integrated unit would take two years to complete and will help build capacity for the growing demand for its agro, agriculture, food, herbal, cattle feed and dairy products. The company says it will double its turnover to Rs 10,000 crore this fiscal (till March 31, 2017). Sources also said that the Chief Minister had given a carte blanche to his team of officials to speed up the process of getting companies to invest in the state. "Right from the start the Chief Minister has made his intentions clear on investment and infrastructure improvement," an official said, adding that "though, initially, industry showed reluctance largely due to its experience with the previous government, they are now literally queuing up to invest in the state". Officials said the state had received investments of Rs 5,200 crore in the last one month. With the state going to polls early 2017, such developments, political observers say, may well bring in goodwill and possibly votes for the Akhilesh Yadav government, which is seeking a return to power. More recently, policies have been announced in favour of the retail sector – 100 per cent FDI in single brand retail, relaxation of sourcing norms for multi-brand retailers, 100 per cent FDI in marketing of food products, the revised Model Shop and Establishment Act (that allows shops to remain open 24×7), bringing in much-needed clarity on “inventory-based” and “marketplace” models in the e-commerce space (giving physical retailers a level-playing field), etc. These policy initiatives have given necessary firepower to the retail sector’s growth in coming years.