Real estate to ride high on retail trade reform
The recent reform initiative to allow up to 51 percent foreign equity in multi-brand retail has given a fresh impetus to the development of malls, perking up the retail landscape that had been clouded by the economic slowdown.
Mall construction was adversely impacted during the last few years following the recession since 2008. Besides the economic downturn, high real estate costs, inefficient mall management and oversupply resulted in a setback to the development of malls, with real estate developers applying the brakes on construction of new malls.
Developers had deferred nearly 44 percent of the 2.27 million square feet of space supply in the first half of this year. The retail real estate market has literally been in a slump with increasing vacancy rates and falling rentals.
In the subdued environment, retailers had been adopting a cautious approach by way of rationalising their input costs through leasing smaller spaces and focusing on established markets. But now, with the new found policy push, the retail sector is set to see an uptrend in coming months.
The multi-brand retail reform has come at a very opportune time, when foreign equity in real estate had started picking up after witnessing a significant fall since 2008.
The first half of 2012 recorded about 27.6 billion of inflow, close to 2011 level.
Not only this, the foreign equity share of real estate and housing has gone up by three percent over the share of two percent recorded in the same period last year.
Foreign equity in multi-brand retail will expedite the flow of long-term foreign capital into retail. Private equity players are also expected to get the reform push.
Foreign equity in multi-brand retail will give a boost to both front-end (retail space) and backend (warehousing) real estate development. In fact, the policy provision of mandatory investment of a minimum of 50 percent of total stipulated foreign equity investment of USD 100 million will give a major boost to retail real estate.
With decks cleared for FDI in multi-brand retail, developers who had earlier deferred mall construction and shifted their focus to residential real estate are now proactively redrawing their plans to tap fresh demand from domestic and international retailers.
Today, there are close to 300 malls in India and at the end of the third quarter of this year, total mall stock across the Delhi National Capital Region, Mumbai and Bengaluru stood at 46 msf. A total of 28 msf of new mall supply is expected to come up in the top eight cities over the next five years.
The mood is upbeat among retailers and developers.
Pantaloon Retail has announced the addition of two million square feet of space over next two years in its existing portfolio of 16.5 million square feet.
Retail real estate players which had slowed down their activity are again becoming active.
DLF has announced the launch of the largest 1.8 million square feet DLF Mall of India in Noida, thereby doubling its portfolio from 1.4 million square feet of leased operational retail space to over 3.7 million square feet over the next two years.
Other players including Unitech, Sobha, Oberoi Realty, Nitesh Estate, Anant Raj Industries, Supertech, Raheja Developers, are all kickstarting retail projects.
In this backdrop, retail landscape truly looks promising. According to AT Kearney's Global Retail Development Index 2012, India emerged as the fifth-most favourable destination for international retailers.
According to Cushman and Wakefield, retail market size which is estimated to be USD 450 billion in 2012 with about seven percent organised retail, is set to reach USD 600 billion by 2016.
The organised retail market size of USD 22.5 billion in 2012 is set to reach USD 42 billion by 2020. The Rs. 24,000 crore retail opportunity, as per Jones Lang Lasalle, is expected to double in the next 10 years with the opening of FDI in multi-brand retail.
Clearly, Mall-goody days are here again!
(Vinod Behl is editor of Realty Plus, a real estate monthly. He can be reached at firstname.lastname@example.org)