The retail sector received a body blow of sorts with the Aam Aadmi Party-led Delhi government banning FDI in multi brand retail. By downing the shutters on foreign retailers in the national capital, chief minister Arvind Kejriwal has underscored the political risk of administrative changes on fresh investments. Uncertainty once again haunts this sector that was just beginning to bring in global retailers.
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Barely three weeks ago, Tesco made the headlines for becoming the first foreign retailer to make an investment proposal for multi brand retail since the doors were opened 15 months ago. Retailers are now understandably a jittery lot. Banning FDI in multi brand retail was part of AAP's manifesto and it has gone through with it. The fear is the BJP may also do the same in the states it is in power such as Rajasthan, or even worse, roll back the reform in entirety if it were to form the government in 2014. The party in the past has threatened to do so.
Question is how should one approach the retail real estate segment? Will rentals fall in this period of uncertainty, making it a good entry point? Jones Lang LaSalle, MD-Retail Services, Pankaj Renjhen doesn’t see the retail HNI segment or even rentals getting affected too much.
Below is the verbatim transcript of Pankaj Renjhen's interview with Nayantara Rai on CNBC-TV18
Q: How will this impact the retail HNI segment?
A: From the retail segment, from a high net-worth individual (HNI) perspective this segment doesn’t get too affected per se because retail HNI which is there is still in a smaller segment of purchasing high street properties and that continues to be robust because there is no new added supply which is getting built particularly in the national capital region and if you talk specifically about Delhi.
Q: What kind of an impact are you expecting on rentals? It is a lost opportunity; you are going to have a smaller pool of retailers that you can rent out properties to?
A: There has been limited impact in the short run because the fact is that the demand far out swifts the supply in Delhi city because whatever the spaces which are there, which can be utilised by a large chain or multi brand retailer will be lapped up by the existing format of retailers that are of Indian origin whether it is the Kishore Biyani Group, whether it is the Adtiya Birla Group, whether it is the Auchan by the Landmark Group.
So, there will be those retailers who will lap up opportunities because in Delhi you always feel there is a scarcity of property available. The pressure on the rentals will be that since the prospects are also limited, the negotiating power of the developer to get higher values is limited because there are only a handful of players. If the number of players increases, it gives the developer a better opportunity to leverage and get the best value. Secondly, it also gives them a better choice of format which is international than not depend only on a certain handful of players.
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