×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Shoppers drift back, spur mall developers to revive projects

Shoppers drift back, spur mall developers to revive projects
Comment E-mail Print Share
First Published: Tue, Dec 22 2009. 12 24 AM IST

Positive signals: A mall in New Delhi. Shoppers are moving back, giving developers some reason to cheer after growth shrank in the meltdown. Ramesh Pathania / Mint
Positive signals: A mall in New Delhi. Shoppers are moving back, giving developers some reason to cheer after growth shrank in the meltdown. Ramesh Pathania / Mint
Updated: Tue, Dec 22 2009. 12 24 AM IST
Mumbai / Bangalore: Mall developers in India seem to have regained some of the bravura that was punctured by the economic slump that took its toll on the country’s retail sector last year. Some developers are reviving projects as the economy gathers growth momentum and rentals start looking up with shoppers returning.
Positive signals: A mall in New Delhi. Shoppers are moving back, giving developers some reason to cheer after growth shrank in the meltdown. Ramesh Pathania / Mint
An industry estimate says 15 new malls have been opened in Mumbai, Delhi, Bangalore, Kolkata, Chennai, Hyderabad and Pune in the past three months, and at least 48 more will be opened next year.
Till the end of 2008, these seven cities had 163 malls with 338.6 million sq. ft of space.
The new malls are all projects that ground to a halt a year or so ago. Some 80-85% of some 640 malls in various stages of development were put on hold after the global meltdown hit the Indian economy in 2008. Retail and real estate were the worst hit, and mall rentals dropped drastically, forcing the developers to go slow on projects.
They also reviewed the revenue model and many opted to lease space to professional mall management consultants or work on revenue-sharing arrangements with the retailers, as opposed to merely renting out square feet.
“Mall developers are no longer looking at just a one-time profit,” said Nipun Jain, senior manager, consultancy and valuation, at Colliers International (India) Pvt. Ltd, a service provider to property investors and retailers. “Earlier, they sold retail space in a mall in a piecemeal manner and were not concerned with mall management and the success of the retailers. Things are changing.”
Also See More malls (Graphic)
According to an estimate by property consultancy firm Jones Lang LaSalle Meghraj, 23 new malls have been opened in 2009 and out of this, 15 have started since October.
These include the upscale Palladium in Mumbai and K Raheja group’s Inorbit Mall in Hyderabad. In Bangalore, Ramkumar Mills, a 600,000 sq. ft mall, went operational with Star Bazaar, although it still has 80% vacancies to fill. In Kolkata, Lake Mall began operations earlier in this quarter with Fun Cinema and Big Bazaar.
“The slowdown faced by the sector was emotional and not real as investors, builders and retailers became cautious,” said Susil Dungarwal, founder and chief mall mechanic, Beyond Squarefeet Advisory Pvt. Ltd, a mall management consultancy firm. “Mall developers were holding on to their projects to get better rates as valuations crashed.”
According to him, there are 750 malls in various stages of development from planning to construction across India.
The number of new launches will increase in 2010 over 2009, said Bappaditya Basu, vice-president and head of retail and leisure advisory (West India) at Jones Lang LaSalle Meghraj. The firm expects 48 new malls to launch, adding a total of 20.5 million sq. ft, a growth of 22%.
Kishore Bhatija, chief executive officer of Inorbit Malls India (Pvt.) Ltd, affirms the trend. “For us to succeed, retailers have to succeed,” he said.
Mall developers and retailers are increasingly looking at revenue-sharing, with lower minimum guarantee payment per square foot.
“The minimum guarantee payment per sq. ft has fallen by 10-15% and even more, depending on the property and its location,” Bhatija said. “However, the revenue-sharing has increased and this will benefit us in the long run as a mall’s business stabilizes and we get a larger income.”
Inorbit has three more malls opening over the next couple of years, with an investment of Rs200-300 crore in each of them.
“On an average, the requirement for developing a mall is Rs100-150 crore excluding the cost of land, and if it is successful it can break even in two years,” said Abhishek Ranganathan, an analyst with HDFC Securities Ltd.
“The question is, how do we put capital and make returns?” said Subhash Bedi, founding partner, Red Fort Capital Advisors Pvt. Ltd, one of the biggest India-focused real estate private equity funds that has also backed a project by Parsvnath Developers Ltd.
Organized retail has different real estate formats and is evolving, taking into consideration different customer segments.
A single type of mall “won’t work in India. India has different customers segments and each city has its own nuances—high-end malls, value malls, open-air malls, convenience malls,” Bedi said. “They all have play here. We are looking at investment opportunities.”
Modern retail accounts for around 4-5% of the Rs1.14 trillion consumer goods trade in India, as per market research firm Nielsen Co. Indeed, the sector holds huge appeal for retailers, but everybody is not bullish as yet on the prospects of malls. The reason is their low success rate.
“The success rate is below 10% as there is a huge churn and tenants move out fast as they find themselves not profitable,” said Pranay Sinha, managing director of Star Shopping Centres Pvt. Ltd, formerly president and CEO at south Delhi’s Select Citywalk mall.
“Malls have failed because they couldn’t get the right retailers and customers due to bad locations,” said Ranganathan of HDFC Securities. “Since most malls haven’t done well, good quality mall space is going to be scarce.”
An HDFC group firm, HDFC Asset Management Co. Ltd, has invested Rs100 crore for a 10% equity stake in Bangalore-based real estate firm Nitesh Estates Pvt. Ltd, which is getting into developing malls.
“Investors need to be careful about the value they (invest) to ensure right output in three to four years,” cautioned Ajoy Veer Kapoor, founder and managing director, retail, Saffron Asset Advisors Pvt. Ltd. His company has invested in Modi Buildwell Ltd, a developer of integrated townships and IT parks.
Ramesh T. Jogani, managing director and chief executive of Indiareit Fund Advisors Pvt. Ltd also does not find malls “very feasible from an investor’s point of view”.
This is because there are not enough anchor tenants to sustain huge malls.
“There are only four-five players and they tend to bargain a lot. Maybe three years later, when we can safely assume that malls have turned into an evolved product, we may look at it,” he said.
The economic slowdown had seen casualties in retail. Subhiksha Trading Services Ltd, once the country’s largest operator of discount supermarkets, has shut shop. Both Subhiksha and Vishal Retail Ltd, reeling under Rs730 crore of debt, went in for restructuring their bank loans.
Aditya Birla Retail Ltd’s More closed 119 supermarket stores, leaving it with 654. Reliance Retail Ltd, RPG group’s Spencer’s Retail Ltd and Shoppers Stop Ltd closed many unprofitable stores even as they opened new ones in different locations and renegotiated rentals.
Retailers are once again stepping up expansion plans. Recently, Pantaloon Retail (India) Ltd raised Rs500 crore from institutions. Shoppers Stop, too, is expected to raise Rs250 crore. Trent Ltd, which has the Westside and Star Bazaar retail formats, also announced expansion plans.
Graphic by Ahmed Raza Khan / Mint
sapna.a@livemint.com
Comment E-mail Print Share
First Published: Tue, Dec 22 2009. 12 24 AM IST