India Organized Retail Market Diagnosis & Outlook Group - 01
Objective of the study An attempt to foresee the demand-supply* dynamics of the modern retail market in India till 2012 Presumption – penetration of organized retail will be higher in regions with a higher proportion of middle and high income house holds *Organized retail space represents the supply side
Indian economy has been showing signs of stability, thereby creating a positive impact on consumers' sentiments as well as on the retail industry
Developers are now contemplating projects across the NCR which have dedicated commercial office space within the same premise
Sizeable vacant stock in malls of various micro-markets of the NCR still remains a major concern
Retailers are now entering into a lease contract which is a revenue sharing format
Coming year is very good for ORM of the NCR for demand-supply equation
Hyderabad "City of Pearls"
Market Overview Hyderabad, the capital city of Andhra Pradesh with more than 4 million people is one of the largest metropolitan cities. Besides being one of the most preferred IT destination it has undergone a sea change on the Real estate front due to:
Increase in job opportunities due to increase in IT sector.
Approx. 3.62 mn.sq.ft. of retail supply is expected to enter hyderabad by 2012, with the peripheral markets accounting for 66% of the total supply
However, the total potential supply in the peripheral region is anticipated to be completed by the end of 2012, only 22% of the supply is expected to enter the market.
This is because a large quantum of key residential projects in the peripheral areas has been deferred due to the economic slump. Since most of the major retail malls are highly dependent on the residential catchments of the area, the deferment of these residential projects in turn led to the deferment of several retail projects as well.
Of late, due to the high rentals payable and low revenue generated by retailers, the concept of revenue-sharing has emerged.
However, in Hyderabad, only the new malls which were launched in 2009 have a revenue sharing model.
Most of the food courts in Hyderabad are on a revenue sharing model.
Interesting trends in the high streets of the city during the economic slump:
Micro Market switch carried out by some of the tenants because of:
High rentals quoted by landlords in Banjara Hills and Jubilee Hills at the time of signing.
During the slump, a lot of tenants, who could not sustain rentals for the space they had occupied, decided to vacate and switch to a different micro-market offering much lower rentals.
The inclusion of the Sub-lease clause due to the difficulties faced by tenants during the slump
A tenant can sublease a portion of the property to a mutually agreeable 3rd party in case they are unable to sustain in the micro-market.
The landlords are also open to this idea as otherwise they would lose the current tenant to a different location eg. Pepe Jeans sub leased a portion of its premises to Cakes & More in Jubilee Hills and Heritage to Reebok in Himayatnagar.
Product Category Distribution Tenant profiling of the malls was carried out in order to understand the space occupied by various product categories.
Mall: Operational Profile With the onset of the economic slowdown, cost has been a major concern for mall developers and retailers alike. From the perspective of a retailer the costs involved are: Hence it can be concluded that:
Rent is an important factor out of the various components of cost for a retailer.
Retailers are also liable to pay Common Area Maintenance (CAM) charges on a monthly basis for the common area used by all tenants (such as the lobby, elevators, restrooms or parking lots).
The least CAM charges are witnessed in Old CBD areas, whereas the highest are recorded in the peripheral micro market
It is estimated that the Organized Retail Market will double from the existing Rs. 14 billion to Rs. 28 billion by 2012. However, during the same period, the Real Estate Retail Potential will increase to Rs. 58 billion. This mismatch, will lead to an oversupply situation of 3.41 mn.sq.ft. in 2012.
Market overview Conflicting nature of affluence, coupled with restrictive government policies. First mall in the city (Forum, Elgin Road) launched in 2003 and today it boasts of around 8 large format malls. Recession: Lack of interest shown by retailers, lack of funding across the board, rise in construction cost, lack of consumer demand and acute catchment problem. 'wait-and-watch’. Several malls presently being converted into office and residential spaces. 'Haute Street' on the Eastern Metropolitan Bypass turned into commercial space for office lease.
Operational Mall Analysis 3.4 millions square feet of retail space.
Product Category Distribution Malls (% of retail stock area) Anchor tenants Majority: Apparels and accessory brands. Multiplexes & Hypermarkets. Vanilla Tenants Majority: Apparels and Footwear stores. F&B (restaurants & coffee shops) High streets (number of stores) Majority: Apparels and accessory Personal care, watches & jewellery
ATD is an important measurement of how successful a retailer is. It is the revenue generated per square foot of the store.
Since Central suburbs is expected to experience the highest upcoming supply, it is likely to see a large amount of oversupply.
Western suburbs is likely to see a lot of residential growth followed by organized retail activities. The challenge would be to keep a balance between organized consumer market and upcoming space supply of organized retail.
During the period 2009-12, the ORM is expected to grow from Rs. 74 billion to Rs. 203 billion RERP would increase from Rs. 79 billion to Rs. 216 billion.
The oversupply is expected to fall over the coming years. This is expected to stabilize the retail rental space