New Delhi: High rentals and fewer property are weighing down expansion plans at Pantaloon, India’s most valuable listed retailer, a company official said.
“Expansions into newer cities... is going through a problem phase,” said Mayur Toshniwal, vice president and business head-north at Pantaloon Retail India Ltd.
“You don’t find good properties at good rentals,” he said on the sidelines of a conference on Thursday.
Rentals for prime retail locations in big Indian cities rose the fastest in the Asia Pacific region, Chicago-based real estate firm Jones Lang LaSalle said in study published in August.
It said rentals in Delhi climbed 40% from a year earlier, while in the southern city of Hyderabad they had jumped 76.5%.
In Mumbai, they rose a quarter, and in the software services hub of Bangalore, prices were up 17.2% -- faster than in Hong Kong where prime rentals grew just 15.9% and in Shanghai that saw 11.2% rise.
Rising rentals are squeezing profit margins for the sector, S. Ranganathan, chief of operations at Shoppers Stop Ltd said.
With property costs over 10%-12% and employment costs over 8%, profitability would be an issue for retailers, he said, estimating there would be a shortfall of 40 million square feet for retailers in the next five years.
Pantaloon, which has plans to roll out a chain of small discount stores as well as large-format stores, has been in talks with developers for revenue-sharing deals but the response has been lukewarm, Toshniwal said.
India’s retail industry, valued at nearly $350 billion, is forecast to double in size by 2015, with modern retail’s share of that also quickly increasing from about 3% now.