Israeli mall developer Plaza Center NV will invest Rs5,000 crore over the next five-seven years to set up 50 malls in India, becoming the latest in a growing band of speciality mall developers to construct and maintain shopping spaces for India’s booming organized retail sector.
According to the India Retail Report 2007, organized retail in India accounted for 4.6% of the $270 billion (Rs11.07 trillion) retail market in India in 2006 and is growing at around 40% a year.
The Netherlands-listed Plaza is already developing two malls in Pune and one each in Chennai, Bangalore, Thiruvanathapuram and Kochi. The first of these is likely to open in Pune’s Koregaon Park by the end of this fiscal.
Indian malls are not always managed by owners or built to international standards, making the market ripe for specialized mall developers, analysts say. UK-based mall developer Liberty group recently announced its India entry.
“Plaza Center has come into India at a good time. Indian retail business is poised to enter the second level of retail where developers differentiate between malls—where they plan the mall based on the neighbourhood and target audience,’’ said Shubhrangshu Pani, president retail at Jones Lang LaSalle Meghraj, a property consulting company. “Several Indian mall developers are also becoming aware of the need to differentiate their malls according to location and target audience. Many of these new-generation malls will be rolled out over the next six-eight months, he added.
Plaza Center, which has 42 malls across nine European countries, set up its first malls in eastern Europe. The London Stock Exchange- listed company announced a turnover of €400 million, in fiscal 2006 and a net profit of €140 million for the same period ended December.
“We see the same combination of high interest rates and low incomes here that we saw in eastern Europe 12 years ago,” Abraham Goren, executive vice chairman of Elbit Imaging Ltd, Plaza’s parent company, said.
“The difference is that the Indian market is more developed in terms of infrastructure and the spending here is more sophisticated,” he added. In an indication of the Indian market’s growing maturity, the group is not currently planning malls in Mumbai or Delhi. Instead, it is setting up malls in cities that house India’s high-technology industry.
“We are focused on following the IT growth as we believe that the IT industry contributes in a big way to a city’s economic growth,” Goren said. “We will be in Mumbai and Delhi but we don’t know when,” he added.
Jones Lang LaSalle’s Pani said the strategy “makes sense as the land prices are lower in the” smaller cities. “The retailer will get the space at lower price but will make more money as he will retail his products at the same price as in other cities where he has paid more for the space. It is win-win situation for both,” he added.
However, Goren said the present construction bottleneck could hold back the group’s plans. For instance, he expects Plaza’s Indian malls to take 35% longer to be developed than their European malls. Mall developments take a minimum of seven months, and longer depending on size.
“Finding the right land, at the right price, in the right location, of the right size and with a clean title has been hard,” he said. All Plaza malls will have multiplexes, entertainment and educational entertainment facilities. They could have multiple anchor tenants, or large stores, along with a range of smaller stores.
The malls will be upmarket, mid market or discount depend on the location and demographic of potential customers in that location.