The last few months have seen a lot of mid-sized office and mixed-use buildings in Mumbai going under the hammer. Not very surprising, considering the wave of real estate redevelopment that has swept the city.
The last few months have seen a lot of mid-sized office and mixed-use buildings in Mumbai going under the hammer. Not very surprising, considering the wave of real estate redevelopment that has swept the city. What is so unusual about these buildings is the fact that they are going to be redeveloped into stand-alone retail formats. The plots are just perfect - located inside dense residential areas with abutting sub-arterial roads, and of sizes suitable for constructing hundred thousand square foot spreads on three levels.
This new trend is not confined to Mumbai - almost all cities in India are witnessing it. The reason? Substantial mall space is being built, but only half of it is worth a second glance from retailers. We are still stuck with the mistakes we made three or four years ago - jumping on the bandwagon and creating too many malls without reason. Few understood that building and running malls is a science, and that factors like catchment viability, location, supply benchmarking and mall management matter in their success.
So, we have quite a few mediocre shopping centres with substandard locations in inappropriate catchments, designed experimentally and sold by strata (strata-selling mall space is like issuing a death warrant to the mall). These are ruins of hastily-commissioned projects where no retailers want to come, thus adding to the pile-up of vacant retail space in our cities. To compound this problem, there are very few new launches that can lure retailers on project merit.
The Indian retail industry is healthier than ever, scaling new heights and confident of its markets spread over 53 cities that house more than a million people each. 2011 saw a retail real estate supply of 13.8 million square feet hit the market, with 10.7 million square feet getting absorbed (JLL Real Estate Intelligence Service, 4 Q 2011).
That amounts to 130% of the figures for the years 2009 and 2010 put together. Retailers are in the market again, looking for space, willing to invest with long-term business plans and offering a premium for even half-decent properties.
What they find is a stark market reality - all worthy properties are fully consumed and good properties on hand being leased within the blink of an eye. Delaying decisions by even a few days means diminished hopes of business expansion. There is simply not enough good retail space to sell their wares. It can well be imagined what the scenario will be when FDI into multi-brand retail opens up...
With delays in completion and few retail-conducive projects being launched, it is malls, malls everywhere and nowhere to go for retailers. They have finally decided that enough is enough and have started scouting for stand-alone properties. With their eyes on old mansions, mixed-use buildings and small office blocks in established as well as emerging locations, big-format retailers and giant chains are mandating property firms to broker these deals for them.
High streets were never out of form, but now they are back with a vengeance. Properties which, with retrofitting, can enable retailers to start selling in no time at all are fast becoming precious assets for big retail companies. Even constructing glass cubes on plots that house the 'building next door' is seen as preferable over having to wait for properly located and configured malls to come along.
In the world of retail, stagnation is the same as dying and these retailers have no intention of slipping into a market-induced coma. Moreover, these stand-alone stores are the perfect way of giving shoppers a personalised experience that many shopper often find missing in malls.
Ashutosh Limaye, Head - Research and Real Estate Intelligence Service, Jones Lang LaSalle India
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