Retail boom fights soaring rentals, space shortage
First came political misgivings and then street protests by small-store owners
across India, fretful they will be put out of business by the deep pockets and
discounting power of retail chains.
But that perhaps didn't worry
Indian tycoons as much as the surge in rentals and space shortages they are now
battling in a bid to open thousands of stores and change the way the
glitzy, glass-and-steel malls that dot Indian cities or are being built, square
foot prices have almost tripled in three years, according to retail consultant
shot up to a point where very few retailers will make a profit," said Singhal,
head of the consultancy KSA Technopak, who says retail chains may have to slow
want to get into a mall it if there's no financial viability, so a lot of
current retailers and likely new entrants are putting their growth plans in
review mode," he said.
rentals shot up as an economy expanding 9 per cent a year drove up land
valuations and rising prices of steel and cement forced developers to pass on
the increased cost of construction to tenants.
Retailers may get no relief
until more space comes into a market in which 250 malls are under construction,
on top of 300 that have opened this decade in what pundits call the "great
retail gold rush."
of real estate in the cost of our operation is increasing, and that is certainly
a very unhealthy trend," said Bijou Kurien, a senior executive at Reliance
Retail, an arm of India's biggest conglomerate.
"Sometimes you find that the
cost of space being sought is so high that it doesn't make business sense for us
to go into a particular mall," Kurien said on a recent visit to Bangalore in
The cost and
space problems have been largely obscured by political reservations and street
demonstrations against retail chains in a market dominated by 15 million
the most aggressive retail player with plans to spend $6 billion on a giant
chain of convenience stores, supermarkets and hyper-markets, has suffered the
In Uttar Pradesh,
India's largest state, the government ordered Reliance to close its stores after
attacks by traders.
Marxist governments in West Bengal and Kerala are opposed to organised retail,
which accounts for less than five percent of the consumer market in a nation of
1.1 billion people.
consumer spending is estimated by the consultancy McKinsey at 370 billion
dollars and forecast to quadruple to $1.5 trillion by 2025, as a youthful
population earns more and millions climb out of poverty.
That has lured business groups
such as Reliance, Tata and Aditya Birla into retail, only to find there is a
heavy price to pay.
rentals were expected to be in the range of Rs 60 to 75 ($1.5 - $1.9) per square
foot per month three years ago, the same malls are now expecting 150 to Rs 200,"
said KSA Technopak's Singhal.
"Some mall developers are
quoting Rs400 to Rs 600 -- a rate at which no retail business can make any
money," he said.
Delhi's luxury mall DLF Emporio, reputedly India's most expensive, tenants have
to pay Rs 900, real estate consultants said.
And it's not easy finding the
right space in the right location for retailers, who also complain that many
malls are badly located and designed, as well as shoddily managed. Many
developments are behind schedule.
Ajit Joshi, who heads Infiniti
Retail, part of the Tata group, would love to open an outlet in downtown Mumbai
as he expands the Croma chain of stores selling consumer electronics and
"What we want is
about 15,000 square feet of space, but we won't get it even if we are ready to
pay," Joshi said. In other areas, "if you are lucky and space is available, the
rates are so exorbitant it becomes unviable."
Some mall rentals have risen
by 50 percent in the past year, and developers are trying to wriggle out of old
lease agreements under which tenants were offered cheaper space, said Pranay
Vakil, India head of property consultancy Knight Frank.
Developers are today in a
position to quote a price and tell retailers to "take it or leave it," he said