New Challenges for real estate in south india

The lack of quality real estate for retail operations in the southern states has slowed down retail expansion in the region, denting the region’s reputation as a hotbed for retail and its potential for growth. The slow development of retail real estate in the region has led to the South accounting for just 22% of the total retail market in the country at a value of Rs2,62,930 crore and a fifth of the 50 million people employed in this sector, according to a study released by research firm Images F&R in partnership with property consultant Cushman and Wakefield. According to the study, in 2007-08, an estimated 100 million sq. ft of quality shopping space will come up across the country. But, only about 16 million sq. ft of this new development will be in the South. The northern region will see an addition of 41 million sq. ft. While in western India, around 35 million sq. ft of new retail development is estimated to come up by the end of 2007. Much of the retail expansion in the South is expected to come from rapidly expanding tier-II cities such as Kochi, Coimbatore, Vishakapatnam, Mysore and Mangalore. “The new hub of retail will be the tier-II cities with population less than two million,” says Anurag Mathur, deputy managing director, Cushman & Wakefield. It was southern-India-based retailers who pioneered organized retail concepts in the country. The country’s first supermarket, the Nilgiris chain, was set up in Bangalore in 1904 and Spencer’s Plaza in Chennai lays claim to being the first mall in the country. Speciality coffee chain, Cafe Coffee Day, which will have a network of 500 cafes by the end of September 2007, set up its first café with Internet access thrown in at Bangalore’s upmarket Brigade Road in 1998. But now, the lack of quality real estate space is emerging as a key concern for these retailers. “You don’t see the intensity of malls in Bangalore as there is in Delhi and Mumbai,” says Bhaskar Bhat, managing director, Titan Industries Ltd. “The South has a way to go in being able to create retail space to cater to the aspirations of a growing customer base.” Retail space has suffered partly because property developers concentrated on building the office complexes that house technology companies across the southern region; meanwhile, retail realty development lagged. “We are definitely late in the retail layout construction segment,” says Mahesh Khaitan, director of real estate firm Salarpuria Developers. “The same skills that we used to build and sell office and residential space will not work for retail realty, we need to reskill ourselves in mall management.” That’s despite a consumer base that is well salaried, and hungry for goods. By the age of 27, the average IT worker in Bangalore earns Rs6 lakh a year and can expect a sixfold increase by the time he or she is 40 when earnings top Rs35 lakh. Average spend on eating out by India’s IT employees tops Rs4,500 crore according to CLSA Asia-Pacific Markets, a research firm that tracked the lifestyle pattern of 3.25 lakh IT professionals across the top eight IT firms in the country. South India-based consumer durables chain Vivek’s took 30 years until it clocked Rs100 crore in revenues from its launch in 1965. The spurt of growth began from 1996 when it added 47 new showrooms, largely in Tamil Nadu and ­Karnataka, and in Chennai and Bangalore within these two states. “But in 2006, we posted Rs100 crore of sales in just 105 days” says Kodandarama Setty, chairman and managing director, Vivek’s. Vivek’s had sales of Rs360 crore at the end of March 2007 with a chain of 54 stores. By the end of 2010, the group aims to add another 100 stores in the region. Developers such as Salarpuria are rushing to meet the demand for quality retail space in South India. Salarpuria is building a 1.4 million sq. ft Market City, a retail space within Hyderabad’s technology hub, the Hitech City. In Bangalore the developer will build two malls in the city’s western and northern suburbs at an average size of 0.65 million sq. ft.