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Shopping centre development has elements of real estate, hospitality and retail: Abhishek Bansal, Pacific Group

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Abhishek Bansal, executive director of Pacific Development Corp. Ltd, speaks to IndiaRetailing about the specialised nature of the shopping centres business, the importance of increasing trading densities in a mall and challenges mall developers face….

New Delhi: Abhishek Bansal, executive director of Pacific Development Corp. Ltd, is a well-known figure in India’s retail industry with seven of his Pacific-branded malls spreading across Delhi NCR and Dehradun. Pacific has various other malls in the pipeline including a 1.5 million sq. ft. mall in Jaipur, the largest mall in Rajasthan once it is competed in the years to come.

Bansal speaks to IndiaRetailing about the challenges of building newer malls amid rising real estate and construction costs. He talks about the importance of increasing trading densities in a shopping centres and making malls more experiential to attract more footfall and giving compelling reasons for visitors to spend more time in them. Edited excerpts:

How do consumers perceive malls in an era when a lot of shopping happens online?

Malls are great gathering places, where people come for socializing and for entertainment; shopping has now become a byproduct. The common areas in new malls, the social areas that are being developed, and the F&B (food and beverages) that is being developed, these factors further cement the fact that people are coming to malls to spend time and to get that experience; shopping happens in any case.

How many hours consumers would people spend in a mall? Is it different in the pre-pandemic era and now?

It used to be around three hours and I don’t think that number has changed between then and now. Of course, some people stay for longer, some for a lesser time. But an average of three hours still holds true.

Perhaps the activity they used to do pre-Covid and now has changed. Like pre-Covid, they may be spending more time shopping, now they’re spending more time in the entertainment zone or in restaurants, in a club, a bar or a lounge. Along with that, they do the shopping.

So, what does it mean for the new malls you are building?

What this means for new malls is a relook at various categories that have started performing better after Covid and we try and focus on those categories.

For example, we see athleisure doing very well. So, we are now expanding our footprint there. We see food doing very well. So, our food courts are becoming larger, we have more number of restaurants and lounges. Some five years ago, we used to earmark about 10% of our total area to food and beverages. Now it is touching 20 to 25%.

There is a huge uptake in people wanting to enjoy the outdoors. So, we have designed these kind of places. We ensure that we have some kind of outdoor seating for many of the restaurants in our malls.

Then, of course, our Plaza areas where people want to hang out and just spend some time.

And F&B is also making its inroads on the ground floor…

Yes. So, the serious business for F&B, of course, still happens on the upper levels where food is concentrated. But there are multiple coffee shops that have come about—traditional coffee shops, coffee shops which are heavy on food. There is a mix where we have the traditional coffee shops and the new age coffee shops, which you find on the ground floor, lower ground floor or even the first level. We try and sprinkle them on each floor so that it is balanced.

The whole mall business is getting consolidated into various big groups. What does this mean for a company like yours? You are not part of any of the groups, yet you are expanding aggressively.

I will answer your question in two parts. Currently, the model cannot be to be a real estate player. Because shopping centre development has elements of real estate, hospitality and retail—all of that bundled together is what makes a very specialised mall player. So, a limited number of developers are doing that by default because few people want to do this kind of play in the real estate sector.

Developers like us who are running about 6-7 centres and have about three or four new malls in the pipeline, can’t do one million square feet centres every year without a fund backing us or without raising funds through a public issue. If you look at the way we are progressing, we are doing about, on average, about half a million square feet of delivery per annum. We have enough cash flows within to do that.

Then what are you doing for your Rajasthan project where you are building a one million square feet mall?

So, when I say we are doing half a million every year, we will do it in phases—spread over four to five years. So, in totality, we’re doing about three-and-a-half-million over five years. So that kind of balances it out.

Some malls are incorporating e-commerce-induced factors like separate passages for delivery food guys or fulfilment centres to ship online orders. Are you incorporating any such elements in your upcoming shopping centres?

To be honest, this will be a hit-and-trial method. There is no fixed formula for this. We are trying to do various things be it for food, or for e-commerce. We are all learning and watching how this is going to pan out. I think in the next year or two, we will have more clarity.

Post-pandemic, the lease periods have gone from nine years to five or six. Many malls have also incorporated conditions on brands selling online and fulfilling from malls. What has changed in your malls?

Trading density clauses are a big thing now. We ensure that when we lease out a shop, we just don’t say this is the rental or the revenue share that we will get. We also ensure that we reach a trading number that a retailer should achieve. If that is not happening, that means that there’s something wrong—either with the format or the correct customers are not walking into the store. Either we correct that, or we vacate. In addition, renovation clauses after say three years have become a big thing.

Some mall developers are saying developing malls are becoming increasingly challenging due to capex, returns and expensive land. What do you have to say on that since you have been expanding aggressively?

So FSI (floor space index) cost is a challenge because as retail real estate developers, we are also competing with developers who are doing regular commercial buildings and shops where they develop a shop of say 500-600 sq. ft., cut it out and sell. Now, that shop could go for Rs50,000 per square foot, Rs80,000 per square foot or even Rs100,000 per square foot, depending on where you’re sitting. Retail cannot afford those numbers. So that is a big challenge.

Mall construction too is now touching upwards of Rs6,000 per square foot. With that kind of cost, if you are not leasing your centre over Rs110 per square foot, you will not make over 12-13% of ROI (return on investments) which will just take your gestation period to multiple years.

What is the normal gestation period for malls and what would be the gestation period for upcoming malls?

Everybody would want to break even in the next 7-8 years. But this will take 12 years or even 13 years. It’s really a call that one needs to take. Maybe sometimes you take a view that it may not happen in the first three or four years, but four years afterwards we will see a huge uptick that usually a shopping centre gets, and you start getting those 16-17% returns to make up for the 12-13% ROI that you get in the initial years.

Who is the main culprit here? Costly real estate, high construction costs or both? And what’s the solution?

I think it’s a mix of both. The only solution is to increase your trading density. If a 1,000 sq. ft. shop is doing a business of Rs 15 lakh a month, I need to see how it will do Rs 20 lakhs a month.

So that boils down to you bringing more people to the mall and letting them spend more time and money with you. That is where the design of the mall comes into play.

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