Pure mall business out, mixed development in, say realtors

After having a bad year in 2012, several mall developers are now planning to venture into mixed-use development or multi-use projects in the coming year 2013.

They say that mixed-use development is the way forward given the issues pertaining to land scarcity, fund raising and slowdown.

According to market experts, the multi-use projects, which include residential, retail, entertainment, hospitality and office space, will come up in tier 2 and 3 cities on back of availability of huge land parcels, growing mall culture and low rentals.

Mixed-use, a model popular in the West, is slowly catching up in India. Such projects not only reduce the overall cost of capital expenditure but also help in getting better valuations for both residential and the mall segment, said Rituraj Verma, founder of real estate consultant firm Otaku Effect. He further added that it helps create catchments for new malls or shopping centres by developing residential projects simultaneously thus making it a win-win situation for both.

Developers such as Neptune Group, Metro Junction, Prozone Realty, Supertech, Phoenix, DLF, and Hiranandani are planning such projects in different parts of the country. Prozone is already planning in Pune and Nagpur, Neptune Group is coming up with a project in Bhandup and Century is constructing a similar project in Bangalore.

“Apart from competition and increasing challenges in the mall business, the returns are reducing while the land and construction input costs are rising. In these times, developers are shifting to other realty segments that offer better returns,” said Kishore Bhatija, Managing Director of Inorbit Mall.

He further said that the quantum of properties going for mall construction has reduced this year and is likely to dwindle further in 2013 as well.

With an operational stock of close to 65 million sq ft during 2012, the retail mall supply across the top seven cities of India slowed considerably compared to the supply recorded in 2011, according to Jones Lang LaSalle. These cities comprise Delhi-NCR, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad and Pune.

“With a drop in supply of over 65 per cent, new completions in 2012 YTD were at a new low when we consider the trend of the past five years since 2007. Barring Hyderabad, all cities recorded completions during 2012, albeit at a slower pace than witnessed in 2011,” said a JLL report.

The FDI in retail is another reason several mall developers have withheld supply and rolled over their launch plans, in turn reducing supply. “Developers want to make their malls more useful and attractive from international investment perspective. So they are re-working their plans to launch them at a later date after tweaking its quality and design and making it more conducive to demand from international retailers,” added Ashutosh Limaye, Head of Research & REIS.

Subhranshu Pani, Managing Director (Retail Services), Jones Lang LaSalle, added that the widening gap between supply and delivery was likely to continue for at least the next two years.

“Long gestation time in mall construction is leading to a situation of oversupply, rents crashing and eventual walking out by developers. Mixed-use can help fix some of these problems though catering to two different type of footfalls and its planning and execution can be a challenge,” he said.

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