In a country where consumers have started earning wealth early in their life and have aspirations, the retail market has huge potential.
Hence, investments in retail space will be an asset, Shubhranshu Pani, regional director of retail services, JLL, tells M. Soundariya Preetha
The retail sector in the country is expected to go through phenomenal growth. There is demand for retail space in metropolitan and tier-two cities. The consumption is also good in metros. Hence, premium brands prefer these cities. But, consumption of space has reduced in tier-two and tier-three cities.
The way retail sector has grown in the last four or five years had been disappointing. It is at the same level as it was five years ago. Only in December and January, there were reports of revival in the retail sector.
Though retailers want space, consumption is not high. So, now developers are saying they will make smaller malls and retailers are saying they will have smaller stores. It varies with brands and cities. In 2009, 2010 and 2011, because of fear factor, the market was low for retailers. It is a consolidation phase now. Mall developers are doing a lot of research before they invest.
The rental rates in metros have almost doubled for residential properties in the last five years.
In the case of office there is a small drop, and in the case of retail space, there is a slight increase.
But the capital value has increased for retail space. The demand is there and prices will go up.
There was a lot of euphoria on retail earlier as rental rates were higher than residential and office sectors. Now, retail rentals are not that high. Further, there is capital constraint in investments that go into real estate. There is no advance payment in retail space (in the construction stage) as in residential.
These are some of the factors that have brought about a slowdown in retail space investments.
The aspiring consumers of the retail sector will become prolific spenders with time, giving a boost to retail sales. Local brands also want to reach out to consumers and need space. Brands that want to expand are looking for space.
Now, the local players should realise the potential of retail space and develop it. If developers can manage cash flows, retail is the best asset as the retail market will grow and potential is huge, he says.