Indian is not a great market for
retail space developers. Unlike other Asian giants where retail or commercial
space goes for a premium, India is a slow mover when it comes to consuming as well
as producing considerable profit out of a retail investment by a property
developer.
Malls in India are mostly restricted
to the urban localities and even more so to the bigger metros. There tier-II
cities do get a lot of activity but rarely attract huge foreign investors like
in the case of counterparts from Japan, Singapore or even China for that
matter.
Development of such huge projects
takes a long time in India due to the patchy judiciary system which delays the
inevitable every time a project faces a roadblock. The key to the success of
Malls or other commercial retail real estate investment is timely completion.
Every delay accounts to a huge loss in anticipated revenue. This is the reason
why bigger brands are not attracted to the Indian Retail Real Estate market.
Also, rentals are quite high in
Indian malls while the realization of revenue for these shops is comparatively
less! To put things into perspective, shops in Indian malls churn out only
1/10th of the revenue a similar commercial space in Shanghai will eke out;
while being on the costlier side for rent!
However, all this is definitely set
to change as the big players are starting to show interest towards the Indian
market. However, they do not wish to commit towards our commercial real estate
sector with intent unless we show some real progress. But companies like DLF,
Reliance Industries, Shobha Developers etc., are trying to uplift the retail
real estate market with projects of their own.
If the efforts of these developers
show signs of improving the commercial sector of Indian property, we are in for
good times. CBRE, one of the leading real estate consultants in the country
have made an announcement that supply will almost double in the next four years
or so. The time frame has been given as four since huge projects take long time
to complete.
The major cities in focus would be
Delhi, Mumbai, Chennai and Bangalore. Existing stock in this sector is already
estimated at over a million square feet. If the predictions of CBRE are to be
true, then the industry is looking close to another two million square feet by
the end of 2019! That is a lot of space to be rented out in such short notice.
Foreign brands that open shop for
branding will be the primary focus for these spaces. However, to eat up such a
large chunk of commercial space, local businesses need to step up their game
too! If the market does hit these numbers, then there will most definitely be a
drop in the rental rates of this retail property. The supply as of now might be
limited, but the potential is untapped and huge; we can only wait and see as
drama unfolds in the commercial property market of India.
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