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2010 can be brighter for Retail Sector in India

The year 2009 has been bad for the real estate sector, particularly for the retail sector. While residential real estate picked up in the last two quarters, retail has been seeing very low demand. According to a report by Cushman & Wakefield, of the 44 malls proposed at the beginning of the first quarter of 2009, just about 18 were delivered by the year end. A number of developers postponed mall projects in 2009 but with a revival of demand in the end of the year, 2010 is expected to see a number of mall projects getting back on track.

“The outlook for the retail sector in 2010 is looking brighter. The festive season has been good and has seen a lot more footfalls. As the market picks up, there will be a revival of demand for retail spaces again,” says Rajeev Talwar, executive director at DLF. Year 2009 saw fresh supply of 5.7 million sq ft of mall space. Approximately 9 million sq ft of mall space was deferred to the future, which is a reduction of 60%. Almost 80% of new mall space in Bangalore was postponed which meant the city saw a vacancy of only 3%.

“I see retailers being cautiously optimistic in 2010. They will expand but with caution unlike earlier,” says Jaideep Wahi, director, retail agency, Cushman & Wakefield. Most large developers had postponed their projects as it was hard for them to lease retail space, he says. In the early part of 2009, developers also faced a credit crunch which slowed down mall plans. This slowdown in mall construction need not be viewed as a negative. The slowdown has helped in maintaining a good supply demand equation, especially for markets which were staring at an oversupply situation.

Delhi-based developer Omaxe launched its mall in Patiala a month back and the response has been good, says Rohtas Goel, CMD, Omaxe. The company though had decided to postpone its 1.5 million sq ft mall Connaught Place in Greater Noida because of lack of demand in 2009. “The retail segment is seeing renewed demand over the last 4-5 months. We are seeing new leasing activity start at our mall in Greater Noida where construction will start in early 2010,” says Goel.

Across the major cities, rentals hardly saw any upward movement since the markets crashed late 2008. Mall as well as main street rentals (except a few locations) continued to remain below the average rental rates of the fourth quarter of 2008, says the report. Some micro markets in the NCR, Bangalore and Mumbai saw a 53%-40% decline in rentals in the fourth quarter of 2009 over the same period last year. Bangalore’s prominent high streets (Brigade Road and Commercial Street) were the only micro markets to post an approximate 10% rise in rentals over last year, indicating the existing demand for premium retail precincts over emerging locations in the city.

Of the 5.7 million sq ft of fresh mall supply in 2009, the largest share of the supply — 1.8 million sq ft came up in Mumbai, followed by Hyderabad (1.1 million sq ft) and the NCR (0.9 million sq ft). Kolkata saw fresh supply of 0.7 million sq ft. Retailers are now very cautious about signing up new space. “It has been a learning for both developers and retailers. The retailer is now asking a lot more questions and is very cautious,” says V Muhammad Ali, head, mall operations, Forum, Prestige Group’s mall division. They area asking questions about the location, about anchor tenants. Ali recalls that during the boom time, no one was asking these questions. “LoI’s were being signed at conferences at that time.”

This entry was posted on Thursday, December 31st, 2009 at 6:50 pm and is filed under LoftyVistas, real estate market in India. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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December 31st, 2009 at 6:54 pm
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