More retailers opting for standalone formats due to shortage of quality properties

A recent report on the state of retail realty by Jones Lang LaSalle says that though the retail industry is poised for a boom, shortage of quality properties may curtail its chances. So now, retailers are looking for stand alone properties.

“The last few months have seen a lot of mid-sized office and mixed-use buildings in Mumbai going under the hammer. What is so unusual about these buildings is the fact that they are going to be redeveloped into stand-alone retail formats,” said Ashutosh Limaye, head - research and real estate intelligence service.

According to Jones Lang LaSalle, 2011 saw a retail real estate supply of 13.8 million square feet hit the market, with 10.7 million square feet getting absorbed. But there is a catch. “All worthy properties are fully consumed and good properties on hand being leased within the blink of an eye. Delaying decisions by even a few days means diminished hopes of business expansion. There is simply not enough good retail space to sell their wares. It can well be imagined what the scenario will be when FDI into multi-brand retail opens up,” Mr Limaye said.

Retailers, he says, have realised that most malls have turned out to be unprofitable. The rush for constructing malls has resulted in a number of unviable projects; many of them concentrated in a select pocket; and looking like a replica of the next. “So, we have quite a few mediocre shopping centres with substandard locations in inappropriate catchments, designed experimentally and sold by strata (strata-selling mall space is like issuing a death warrant to the mall). These are ruins of hastily-commissioned projects where no retailers want to come, thus adding to the pile-up of vacant retail space in our cities. To compound this problem, there are very few new launches that can lure retailers on project merit,” Mr Limaye says.

Big retailers are now eyeing old mansions, mixed-use buildings and small office blocks in established and emerging locations. “Properties which, with retrofitting, can enable retailers to start selling in no time at all are fast becoming precious assets for big retail companies. Even constructing glass cubes on plots that house the 'building next door' is seen as preferable over having to wait for properly located and configured malls to come along,” he said.

It may also be profitable to realtors to sell away individual properties, because it is difficult to find buyers in the present scenario. “Commercial and retail sectors are seeing many distress sales~ especially by small builders,” said a builder, “because of the global economic situation, many pre-commissioned properties are now without takers. In recent times, because of strong dollar price, some NRI investments have come, but mostly for residential property; and is not of much significance.”

The retail sector is currently under a lot of pressure. Many are having trouble managing staff and operation costs, and have incurred substantial debt, especially in the lifestyle and apparel sector. Future Group’s Pantaloons has a debt of Rs 2273.12 crores, while the much troubled Koutons has Rs 806.81 crores. In the last one year, Kouton’s stock price has fallen by 70% and was trading at an abysmal Rs16.55 on 6th February. Brandhouse Retail, which is the home of Reid&Taylor, Carmichael House and Belmonte, was trading on Rs13.84 on 6th February, which is a 56% fall over one year.