Real estate developers still favour small cities over metros

Real estate developers still favour small cities over metros
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First Published: Fri, Dec 04 2009. 12 03 AM IST
Updated: Fri, Dec 04 2009. 12 03 AM IST
Bangalore: Developers of shopping malls and retail outlets are returning to business after a forced hiatus during the downturn, and are still betting big on the potential of smaller cities over the metros.
These builders had turned their focus to the so-called tier II, III and IV cities, such as Lucknow in Uttar Pradesh or Raipur in Chhattisgarh, when high streets and shopping malls in the big cities got hit.
The Indian retail market was one of the worst affected by the downturn as average rental rates across markets fell 41%, according to a report by property advisory Cushman and Wakefield India, titled Main Streets Across the World 2009. Average bill sizes of customers dropped by about 20%.
Prozone-Liberty International Ltd, retailer-turned-developer Provogue (India) Ltd’s maiden real estate joint venture with London’s Liberty International Plc, is making a comeback after a year’s delay, pushing the launch date of its project to mid-2010.
The firm has also changed its business model from retail-centric developments to mixed-use—a flexible mix of residential, commercial and hospitality—to hedge risk. What Provogue has not changed, however, is the locations it wants to be in—primarily smaller cities starting with Aurangabad, Coimbatore, Nagpur, Indore, Lucknow and Jaipur.
“It’s a bold decision in the current scenario. Though there is spending power in these places, large developments may be risky now,” said Bappaditya Basu, vice-president (retail) at Jones Lang LaSalle Meghraj, a property advisory. “Also, getting the right location in the city centres and offering value propositions to buyers in the leanest of periods are key.”
Between 2005 and 2008, a number of developers were keen to enter smaller markets because of cheap and available land. After the downturn, though, analysts say that while large cities have started recovering, the smaller ones would take longer.
Basu said that though smaller cities have an edge as they are relatively untapped, the business of retail lies in the details. For example, book stores still don’t do well in Punjab, formal clothing is difficult to sell in Gujarat and high-end fashion is still a challenge in south Indian cities. “One needs to get the tenant mix right” apart from the pulse of the place, he said.
Explaining the strategy, Nikhil Chaturvedi, managing director of Prozone-Liberty and Provogue (India), said about 80% of modern retail space has been developed in the large metros leaving a void in tier II cities.
“Let’s also not forget that of the country’s 300 million consumers, only 15% live in the larger cities, leaving an unserviced consumer base of about 250 million people today. We want to come into that space,” said Chaturvedi.
Prozone is taking precautions such as offering about 60% of the retail component instead of the entire project, and are opting for a two-storey structure after a survey showed that most people in smaller cities don’t go beyond the first floor.
Another mall developer, Entertainment World Developers Pvt. Ltd, a partner firm of Phoenix Mills Ltd, which is focused on tier II development, is gearing to launch a 350,000 sq. ft shopping mall in Nanded, Maharashtra, in December that will have hotels alongside.
“We are seeing a turnaround, though the process has been slow. The idea is to have a national footprint and we can’t restrict ourselves to tier I cities alone,” said Kush Medhora, chief operating officer of Entertainment World. The firm has projects in Raipur, Jabalpur and Bhilai as well.
Another firm Jaybharat Textiles and Real Estate Ltd has plans to build about 20 million sq. ft of space, primarily retail, in cities such as Vapi, Silvassa, Nagpur and Ludhiana over the next six years.
The company, which had slowed the pace of its developments, is completing a mall-cum-office in Vapi, in Gujarat’s Valsad district. The project, originally scheduled to be launched this year, will now be launched in 2010.
“We are going ahead with whatever plan we had even if there has been a delay. We have about 10 lakh sq. ft ready by this year and we have already leased out the Vapi project,” said Saurab Tayal, chairman of Jaybharat Textiles.
madhurima.n@livemint.com
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First Published: Fri, Dec 04 2009. 12 03 AM IST