Monday, 18 May 2015

Retail rentals flat in metros, rise in suburbs

High streets in big metros are no longer where the action is, where rentals have remained stagnant or declined marginally over the past year. On the other hand, they have seen an uptick in select streets in suburbs of major cities.

According to a REPORT by real estate consultancy Cushman and Wakefield Inc., high-street rentals in emerging markets of Mumbai such as Vashi rose 25% in the first quarter of this year over the same period in the previous year. Similarly, DLF Galleria in Gurgaon and streets in Dwarka, a Delhi suburb, saw an increase of 15.4% and 6.3%, respectively.

Experts said the demand for commercial spaces in the outskirts has increased over the past few years in the wake of increasing demand and limited supply of quality space in prime locations of cities. The suburbs are also attracting retailers due to the growing number of residential properties in their vicinity. The REPORT also forecast that suburban rentals are likely to increase in the next few quarters on account of the high level of inquiries from foreign food and beverage and apparel brands.

High streets in prime locations in the metros saw rentals record a marginal decline or stayed flat in the past year due to reduced leasing activity. Despite the decline, most retailers said monthly rentals in these stretches were still at a premium due to the high base.

While prime locations in Mumbai like Colaba Causeway and Flora Fountain saw a decline of around 7%, rentals for Bengaluru high streets like Brigade Road fell 9% in the March quarter over the same period last year. Bucking the trend, Delhi’s Connaught Place (Inner Circle) saw robust retailer demand, pushing rentals up 13%.

The limited supply of mall space is also forcing retailers to explore high street options in prime and not-so-prime locations, pushing up rentals. According to JLL India, a real estate consultancy, mall development was at its slowest in 2014, with only 1.3 million sq. ft of space completed for commercial use, as compared to 5.7 million sq. ft in 2013.

Existing malls are also operating at 100% capacity. Dinaj Madhukar, vice-president of DLF Promenade and Emporio malls at Vasant Kunj in Delhi, said they had no space available for fresh leases.

“In many micro markets, high street rentals are seeing an increase as population dynamics and, consequently, purchase dynamics are changing rapidly, attracting more retail brands to open stores. This is pushing up rentals in these locations,” said Sanjay Dutt, executive managing director (South Asia), Cushman & Wakefield.

But not all brands are comfortable moving to the fringes of cities. A few premium apparel and food brands said they would prefer to wait for the right space to become available at a prime location. Sumeet Yadav, CEO of restaurant chain Nando’s, said, “Retail stores are definitely moving towards new developing markets but for brands like us looking to establish in the premium segment, we would like to start out from a prime location even if that means PAYING a little premium.”

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