New Delhi, Dec. 9: Parliament’s endorsement of FDI in retail has energised real estate players who have been going through a lean patch.
The segment can now look to building more malls not only in the metros but also in the cities that have a population of a crore.
“The real estate retail industry will benefit immensely because of the increase in demand and investor confidence. We can also expect an increase in transparency in retail real estate, on the similar lines of commercial real estate. Additionally, the country will significantly flourish in terms of quality standards and consumer expectations, since the inflow of FDI into retail is bound to pull up the quality standards and cost-competitiveness of Indian producers in all the segments,” Santhosh Kumar, CEO (operations), Jones Lang LaSalle India, said.
India’s per capita mall space in its top seven cities is estimated at less than a square feet. The US and Europe average is 20-40 times that of India.
Real estate firms, which were reeling under the impact of the economic slowdown, will see a revival in demand following the FDI approval and are likely to bag deals from foreign retailers
Real estate firms such as Unitech, DLF, Oberoi Realty and Sobha Developers will be the biggest gainers, industry insiders said.
According to a recent report, DLF plans to start the construction of the country’s largest mall with 4-million-square-foot of space in Gurgaon. It is expected to be operational by 2015-end or early 2016.
Sources said DLF was also planning a 1.8-million sq ft mall at Noida, which would be operational by the third quarter of 2013-14, and was in touch with all leading foreign players keen to enter India.
Retail real estate in India has been suffering for the last three years, and demand in terms of net absorption of space fell 57 per cent from the levels seen in the year-ago period.
According to Crisil data, retail rents are down 30-40 per cent from the peak in 2008. In fast-growing cities such as Ahmedabad, Pune and New Delhi, vacancy rates at malls are more than 25 per cent, according to property consultants Cushman & Wakefield.
However, analysts said there were also infrastructure bottlenecks that needed to be addressed. Retail needs 100 million sq ft in the next 10 years, but the availability of quality mall space within metros is still a major concern.
Rakesh Jhaveru, an independent analyst, said, “Metros are too costly for Walmart or other foreign retailers to make a profit from. The US model of building on the outskirts or on highways may not work here. One way out is the expanding metro railway network. We expect retailers to lease or buy space on top or below metro stations. This is the best way to penetrate congested yet wealthy urban areas.”