London: Future Group chief Kishore Biyani believes rising input prices have driven up construction costs of shopping malls by as much as 40% in last two years, a media report says.
“Rising steel and cement prices have boosted construction costs of shopping malls in India by as much as 40% over the past two years,” Biyani said in an interview with UK daily Financial Times.
The report said the head of leading retailer Pantaloon has warned that high property prices in big Indian cities are threatening the country’s burgeoning retail industry and adding to the pressures brought on by soaring construction and labour costs.
“At current property prices, you cannot exist in the modern retail business. Either productivity has to increase significantly or rent has to come down, ” Biyani was quoted as saying in the Financial Times report.
Rents in main Indian cities such as Delhi and Mumbai are among the highest in Asia, despite poor infrastructure and uneven quality of properties. Rent for prime retail space in Delhi is $1,146 per square meter a year, as per real estate adviser Jones Lang LaSalle.
Further in the FT report Biyani said that volumes become very important. For anyone who starts at a smaller scale, the pressures become much higher.
However, some relief could be on its way as retail rents soften. A correction in Indian’s property market is already happening, Biyani added.
Meanwhile, Biyani predicted many shopping malls under construction across India would fail due to miscalculations on size, tenant mix, location and management.
“There are too many coming up. People’s understanding of how consumer space works is not there so there will be casualties,” Biyani said in the report.
Despite this Biyani said Pantaloon’s plans laid out in 2006 to invest $1 billion and expand retail space ten-fold by 2010 are on track.