Battling huge vacancies, piling inventories and lacklustre rentals, the Indian real estate is looking forward to retail FDI as a savior, expecting a windfall following the entry of global giants looking for more retail space for expansion.
As overseas chains line up to grab the biggest retail pie, experts see most developers dusting up shelved projects and trying out newer revenue and business models as they unexpectedly get to choose from a wider basket of brands.
Facts speak for themselves. Close to 18.3 million square feet of retail space is expected to come in 2011, highest since 2005, and push up vacancies to 24% during the current fiscal from 18% in 2010, according to data by Jones Lang LaSalle India, a real estate research firm.
Though absorption, too, would be higher at 12.1 million square feet, there would still be surplus space. Of this 12.1 msf, about 4.7 msf has already been absorbed in the first half.
Pankaj Renjhen, Managing Director – Retail Services, Jones Lang LaSalle India, says oversupply in many large cities present a huge opportunity for the foreign brands to take up space almost immediately.
DLF, the country’s largest developer, was the first to latch on the opportunity by announcing Rs 3,000 crore investments in malls. “In the next three to five years, the sector will grow and consumers will benefit. The supply chain issue will also be addressed by the industry adequately. We will invest Rs2,000 crore to Rs3,000 crore in the next five years,” DLF Vice-Chairman Rajiv Singh says.
Experts see more such announcements soon. Pranay Vakil, Chairman, Knight Frank India, says, “Developers have been sitting on the fence waiting for this clearance. I surely see big developers coming up with retail projects.”
Out of 346 mall projects that are at various stages, about 15 were dropped in the past few years, most of them in Bangalore, according to Jones Lang LaSalle data.
Most global research firms agree the country has long been on the radar for investment by foreign brands. Industry sources said Indian developers are likely to form joint ventures with foreign brands, which could entail a complete mall-management package from the developer’s side.
FDI in retail is also seeing up opening a new segment in the retail space.
Developers are expected to develop standalone structures and lease them out to long-format players like Wal-Mart that prefer to occupy an individual structure rather than setting up shop in malls.
Also, developers would be spoilt for choice while picking up the brands.
